Secure supply chains for the US run through its closest neighbors
Bottom lines up front
- Central America and the Dominican Republic buy more from the United States than they sell to it, and forty percent of US trade flows through the region via the Panama Canal.
- Investing in this trade relationship is worthwhile for the US, and it can use tariff exemptions and a higher annual equity cap for development finance to do so.
- Central America and the Dominican Republic should improve the rule of law and invest in a skilled workforce as they seek to deepen their integration to US supply chains.
Central America and the Dominican Republic are often viewed in Washington primarily through the lens of migration and development assistance. Yet this framing overlooks a transformation: the subregion is outpacing broader Latin American growth, has built competitive manufacturing capacity, and hosts critical infrastructure for US trade. In an era of geopolitical rivalry, supply chain disruptions, and US efforts to reduce dependence on China, Central America and the Dominican Republic emerge as vital partners for advancing US economic security.
- Central America and the Dominican Republic can enhance US supply chain resilience. Recent shocks—from the COVID-19 pandemic to Russia’s war in Ukraine—have underscored the dangers of concentrated, offshore supply chains. While reshoring to the United States alone risks inefficiencies and higher costs, strategic nearshoring offers resilience and competitiveness. CA-DR economies provide the United States with manufacturing complementarities, especially in labor-intensive stages of production, while US firms retain higher-value activities such as research, design, and branding. This dynamic, known as the “smiling curve,” shows that partial offshoring can in fact expand US jobs and exports.
- The subregion already plays a pivotal role in key industries. Costa Rica and the Dominican Republic are leading exporters of medical devices, supplying roughly 13 percent of US imports in 2023. Honduras has become a top supplier of insulated wire, while Dominican free trade zones manufacture critical electronics components. Beyond advanced industries, CA-DR is also a major agribusiness supplier, providing products like bananas, tropical fruits, and coffee that the United States does not produce domestically.
- Trade ties reinforce US economic security. Unlike Asian supply chains dominated by Chinese inputs, CA-DR production heavily relies on US inputs, particularly in textiles, where US yarn and fabrics sustain more than 400,000 American jobs. The United States enjoys a trade surplus with CA-DR, a rarity in global trade, and these flows are underpinned by the CAFTA-DR free trade agreement, which guarantees fair treatment, investment protections, and legal stability.
- Infrastructure is a strategic frontier. Forty percent of US trade passes through the Panama Canal, and several of Washington’s most critical regional ports are in CA-DR. While Chinese investment in the subregion remains modest, projects in Honduras, El Salvador, and Panama reveal Beijing’s growing interest in ports and logistics corridors. Left unchecked, such influence could threaten US access to strategic trade routes and undermine long-term security.
- Policy recommendations call for action on both sides. Washington should expand development finance tools, modernize CAFTA-DR to USMCA standards, and create a regional supply chain security framework. CA-DR governments must strengthen rule of law, improve business environments, and invest in workforce development to meet industry needs. Together, these measures can solidify CA-DR as a reliable partner in building resilient, competitive, and secure supply chains for the United States.
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About the authors
José Manuel Restrepo is former minister of trade and industry and former minister of finance of Colombia, and a nonresident senior fellow at the Adrienne Arsht Latin America Center.
Martín Cassinelli is assistant director at the Adrienne Arsht Latin America Center of the Atlantic Council.
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Image: A longshoreman operates a gantry to offload containers from a docked cargo ship at PortMiami on Saturday, February 20, 2021. Photo by Matias J. Ocner/Miami Herald/TNS/ABACAPRESS.COM via Reuters.
