By Roberto Orozco B. | 2025-01-27

SAN JOSE, Costa Rica -- Nicaragua is importing more from China than it exports, gaining little benefit from its free trade agreement with Beijing or the reestablishment of diplomatic ties with China following its 2021 break with Taiwan, according to Nicaraguan economists consulted by Entorno.

Nicaragua's exports to China grew by 390% during the first three quarters of 2024 compared to the same period in 2023, the latest data from the Central Bank of Nicaragua (BCN) reveal.

However, this growth pales in comparison to imports. While exports totaled just $51.1 million, imports from China reached a comparatively staggering $1.02 billion during the same period, highlighting a massive trade imbalance.

Economists point to Nicaragua's limited export capacity as a key factor.

"This is due to the country's export limitations," explained economist Enrique Sáenz from the Foundation Bridges for the Development of Central America.

Sáenz stressed the need for Nicaragua to "transform its productive matrix," a shift he acknowledged will not happen overnight.

Until then, the disparity between exports to and imports by China is likely to persist.

January 1 marked the first anniversary of Nicaragua's free trade agreement with China, a deal to boost trade between the two nations. The accord includes provisions such as eliminating tariffs on 60% of traded goods and gradually removing tariffs on the remaining 40%.

The rise of Chinese stores

One year after the treaty took effect, the most visible impact has been the proliferation of stores run by Chinese nationals, offering consumer goods across the country. While these businesses thrive, Nicaraguan merchants claim they face "unfair competition" as their sales dwindle, leaving them struggling to compete.

Adelayda Contreras, a merchant from Managua, highlighted how Chinese businesses have inundated the Nicaraguan market with inexpensive products imported under low-tariff agreements with China.

"We can't compete with them," she told Entorno. "Their strategy is to exploit the import benefits provided by the Nicaraguan government, allowing them to sell at rock-bottom prices to drive us out of business and take over the market."

Last May, the Nicaraguan digital newspaper Confidencial reported that Chinese businesses had slashed the sales of local merchants by as much as 70%.

Stores like Bazar Chino, China Mall, La Estrella, Nicaragua Electrónica, Mundo Nica and Supermercado Chino have become favorites among Nicaraguan shoppers, outcompeting traditional businesses that have operated for decades, the publication said.

The rapid expansion of Chinese stores coincided with the implementation of the trade pact between Nicaragua and China, Confidencial noted.

Chinese merchants in Nicaragua are largely responsible for the surge in imports from China, pointed out another economist, who requested anonymity over concerns about potential reprisals against his family in Nicaragua.

"Since the [agreement] came into effect, imports rose from $267 million in the first quarter of 2024 to $302 million in the second quarter. By the third quarter, they had climbed close to $373.6 million. This reflects an average growth of 53.3% over the three quarters [compared to the same quarter in 2023]. Fourth-quarter data are still needed for a more detailed analysis," he explained.

Risks to other trade deals

Nicaragua's inability to produce goods appealing to the Chinese market will perpetuate the trend of high imports and minimal exports, said Sáenz the economist.

"There's an objective limitation here. Nicaragua's production capacity, largely focused on agricultural goods, isn't attractive to the Chinese market. They don't consume gallopinto or the salty cheese we're accustomed to. From Nicaragua's economic perspective, China offers no particular advantage," Sáenz added.

China could become a viable market for Nicaraguan products only if access to the US market is restricted, he said.

"But that remains just a hypothesis," Sáenz added.

While Sáenz described the closure of the US market as a hypothetical scenario, the possibility has gained traction.

In December, the United States launched an investigation into "Nicaragua's Acts, Policies, and Practices Related to Labor Rights, Human Rights, and the Rule of Law," as phrased in the US Office of the Trade Representative (USTR)'s statement.

It raised concerns about the future of the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR).

The countries that signed the agreement include the United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua.

This inquiry signals potential and significant repercussions on Nicaragua's trade relationship with the United States.

The United States remains Nicaragua's top trading partner, importing $1.23 billion worth of Nicaraguan goods in the first three quarters of 2024. That figure far outweighs the $51.1 million in Nicaraguan exports to China during the same period, according to the BCN.

Former Nicaraguan foreign minister Norman Caldera, who played a key role in negotiating CAFTA-DR, described the potential suspension of Nicaragua from the pact as "a debacle" for the country, highlighting its severe economic implications.

They would include tariffs on Nicaraguan exports or even the end of CAFTA-DR member states' trade with Nicaragua.

Infobae reported his remarks on December 16.

In its December 10 statement, the USTR expressed concerns about Nicaragua's "repressive and persistent attacks on labor rights, human rights, and the rule of law."

The investigation, conducted under Section 301 of the United States' Trade Act of 1974, is expected to last a year and could result in suspension of Nicaragua from CAFTA-DR, or even permanent expulsion.