El Salvador reached a deal with the US to drop the 10% tariff that had been imposed at the beginning of the year on a number of Salvadoran export products. This measure is seen as beneficial both in the short and long term for several export sectors, especially the textile and apparel industry, which is the main source of export revenues for the country.
In an interview with Diario Latino, Economy Minister María Luisa Hayem said that the removal of this tax, which was levied as part of a broad review of the Salvadoran-US economic relationship, will immediately reduce the cost of doing business for exporting companies. “To start with, 10% that we will no longer have to pay,” she said. “We are going to begin with this,” Minister Hayem added.
Coffee, manufactured goods, and agro-industrial products also appear in the measure, but the textile industry is the main winner since, in addition to accounting for most of the export revenues, this is an extremely competitive segment with strong pricing pressure in international markets. The elimination of the tariff will allow Salvadoran producers to have an advantage over competitors from Asia and other Latin American countries.
In the long term, the evolution of the Salvadoran textile industry in the last decade places the country in an ideal position to take full advantage of the agreement. In recent years, textile firms in El Salvador have invested in new production facilities to incorporate more automation and use synthetic fibers and designs. These efforts have allowed the textile industry to go from simple assembly operations to producing higher value-added garments, which makes El Salvador, as it finalizes an agreement with the US, an ideal destination for companies looking for a cost-competitive platform near the North American market.
The Importance of Bilateral Trade for El Salvador
One of the key points made by the Minister during the interview is the relevance of the United States to El Salvador as a trading partner. The United States absorbs around one-third of Salvadoran exports and is, by far, the destination that receives the largest volume of Salvadoran products. “It is our main export partner, the one that receives the largest share of our products,” Hayem said.
For international investors, especially those considering larger or more strategic investments, the increased access to the United States market should also improve confidence. Minister Hayem said that the stability and breadth of U.S.–El Salvador economic ties are important factors that companies take into account when deciding where to invest. The agreement, which aligns Salvadoran export incentives more closely with those of the U.S., should allay the concerns of companies that value that type of market access.
As the global economy continues to be reconfigured, with many U.S. companies re-shoring their supply chains out of Asia and toward the Western Hemisphere, this perception and reputation become more important. A large part of these new supply chains, which put more emphasis on nearshoring as a way of reducing logistical risks and time-to-market, includes El Salvador as a cost-competitive link. As El Salvador finalizes an agreement with the US, this event should give additional impetus to that process.
Consultations With Business Associations and Exporters
Minutes after the joint press release was made public, announcing the elimination of the tariffs, MINEC met with several business chambers, export associations, and some individual companies to explain in greater detail the scope and procedures related to the agreement, to make sure that exporters are aware of the compliance requirements, and to listen to the concerns and expectations of the private sector.
Silvia Cuéllar, president of the Salvadoran Exporters Corporation (COEXPORT), told Diario Latino that the textile industry is the main sector that will benefit from the deal, given the importance of this activity in terms of exports to the United States and the strong drive of investment, technology, and innovation that they have maintained. She also emphasized the need to analyze the implications of the agreement for other segments. “We have to wait for the definitive outcome; for example, there are nostalgic products, and we don’t know if they are included,” Cuéllar said. Nostalgic products are food and other goods traditionally consumed by Salvadorans living in the United States, which have also become a specialty and growing market in the U.S.
Export Results and Projections
From January to September, exports totaled $5,137.6 million, an increase of 5.7% compared to the same period of the previous year. This growth was mainly due to textile manufacturing, plastic products, and foods and beverages, which were among the products with the best performance in terms of value.
Exports to the United States during the period reached $1,605.2 million, down 1.8% compared to the figure for 2014 reported in the study. In a context of trade disruption and supply chain bottlenecks that have affected the region as a whole and with the additional burden of inflation, this result is not surprising. The removal of the tariff is expected to reverse this downward trend and spur growth for the remainder of the year and beyond.
Expectations are that exports will continue to grow, both in absolute terms and as a percentage of GDP, which could help offset the impact of import costs on inflation and currency exchange. One of the factors that will help exports grow in the coming months is seasonality, as the last quarter of the year is usually one of the busiest in terms of export volume due to demand in the United States. According to MINEC, as El Salvador finalizes an agreement with the US, the drop in production costs as a result of the elimination of the tariff should be reflected in increased production volumes and, consequently, in the generation of more jobs in the exporting sector.
Integration, Competitiveness, and the Future
In general, the elimination of the tariff is the culmination of a process of strengthening economic integration between the two countries. As El Salvador finalizes an agreement with the US, this process is taking place at a time when regional supply chains are being re-designed with new criteria that prioritize resilience, transparency, and, above all, efficiency. For Salvadoran companies, this represents an opportunity to attract more investment, increase the level of modernization, and consolidate the country as a regional manufacturing pole.
The government has announced that it will release additional technical documents and operational guidelines in the coming days, which should provide greater clarity to exporters and facilitate the implementation of the agreement. For the moment, the reaction of the business sector is positive, and there is a broad expectation that the agreement will consolidate El Salvador’s place in U.S. value chains and stimulate sustainable export growth.