The United States and El Salvador on Jan. 29 signed an agreement to reduce trade barriers and promote bilateral investment. The deal, which is supplemental to the CAFTA-DR free trade agreement, comes as El Salvador seeks large-scale mining investment following a 2024 law that lifted a ban on metallic mining. How will the new trade agreement with the United States affect El Salvador’s economy? Relative to other places in Central America, what risks exist for prospective investors in El Salvador’s mining sector? What is the country’s macroeconomic outlook for 2026 and beyond?
Sarah Phillips, manager for northern Latin America at McLarty Associates: “The recent signing of the U.S.-El Salvador Agreement on Reciprocal Trade is a positive signal for the bilateral trade relationship. The finalized agreement removes tariffs on key Salvadoran exports, notably reinstating duty-free treatment for textiles and apparel under CAFTA-DR. The reversal of tariffs will reduce the cost of imports for U.S. apparel brands and retailers, making Salvadoran-made garments more competitive relative to goods from other CAFTA-DR members like Nicaragua. The freshly inked agreement also positions trade cooperation as a national security priority, aiming to catalyze investment in critical minerals. Despite this positive momentum, several challenges remain for prospective investors. For one, El Salvador’s overall business environment ranking is low by regional standards. A small market size, high labor informality and concerns over regulatory certainty weigh on the country’s investment climate. In the mining sector, investors face operational risks ranging from a low availability of specialized workers to infrastructure deficiencies. At the same time, the Bukele administration’s openness to public-private partnerships and a fully dollarized economy help buoy investor sentiment. Looking ahead, El Salvador’s macroeconomic outlook remains cautiously optimistic. Forecasts for GDP growth hover around 3 percent, supported by orthodox fiscal policies and the ongoing IMF loan program. For U.S. businesses, El Salvador offers a unique opportunity to nearshore critical mineral supply chains, although investors should weigh any geopolitical advantages against persistent operational challenges and regulatory uncertainty.”
Victoria Chonn Ching, nonresident fellow at the Atlantic Council’s Adrienne Arsht Latin America Center: “Like many Central American and Caribbean countries, El Salvador’s economy relies on its subregional neighbors but, mainly, on the United States. As El Salvador’s main trade partner, the United States is the destination for more than 30 percent of Salvadoran exports. The reciprocal trade agreement signed in January reinforces the economic importance of the United States for El Salvador. With this reciprocal agreement, El Salvador becomes a preferential partner for the United States, lifting the 10 percent tariff rate on some products that the United States had imposed on El Salvador in 2025. Most importantly, this agreement is also representative of renewed U.S. efforts in recalibrating and reshaping its relationship in Latin America and the Caribbean as it seeks to (re)develop its spheres of influence as highlighted in the U.S. National Security Strategy. Economically, the agreement provides market opportunities for El Salvador’s main export industries to the United States, including textiles, manufactured goods and coffee. It is also expected to support the promotion of private investment into the country, especially in areas such as telecommunications, infrastructure and mining, thus bringing needed financing and resources to support El Salvador’s industrialization and development. However, particularly in the case of mining, which had been banned since 2017 and was reactivated in 2024, it is unclear the degree to which the potential benefits and contributions of this economic activity will outweigh the costs, especially when referring to environmental and health concerns. After all, despite having gold reserves that were previously extracted, El Salvador has a comparatively limited history of mining. A question worth asking is what policies the country—and the reciprocal agreement—may generate to support and develop structures that will ensure sustainable and stable growth as well as economic relations.”
Gustavo Flores-Macias, dean of the University of Maryland School of Public Policy: “The impact of the U.S.-El Salvador reciprocal trade agreement signed on Jan. 29 is likely to materialize more through the reduction of nontariff barriers and lowering of investment risk than through tariffs, since CAFTA-DR already provides broad duty-free access. The new accord, which builds on a framework to which the two countries agreed in 2025, focuses on lowering constraints and compliance costs for exporters and for U.S. firms operating in El Salvador regarding import licensing, sanitary and phytosanitary measures, customs digitization, IP enforcement and regulatory transparency, among others. The agreement also targets critical mineral supply chains and the mobilization of finance tools such as the Export-Import Bank and the U.S. International Development Finance Corporation to accelerate the development of new projects. For mining in particular, El Salvador’s 2024 metallic mining law lifted a ban on mining despite opposition from environmental groups. Although this presents an important investment opportunity for the sector, there are risks associated with the state retaining exclusive authority over mineral resources and the need to form mixed private-government partnerships to participate. Further, because of the environmental concerns in a water-stressed country like El Salvador, mining conflicts can quickly become political. These concerns notwithstanding, the macroeconomic outlook for El Salvador is favorable. For example, the IMF estimates the country’s real GDP growth rate at around 2.5 percent in 2026 and about 3 percent for 2027, with slight improvements in public debt as a share of GDP. If implementation remains consistent, the accord could position El Salvador as a niche player in emerging critical mineral supply chains, though investor confidence will remain sensitive to governance and environmental risk management.”
Rose J. Spalding, professor of political science at DePaul University: “The new reciprocal trade agreement between the United States and El Salvador is designed to normalize economic relations after President Trump’s tariff declarations disrupted the established CAFTA-DR rules. Like most trade agreements, this statement goes beyond regulation of commercial exchange to include investment promotion and intellectual property rights protection. Signed by United States Trade Representative Jamieson Greer and Salvadoran Minister of Economy María Luisa Hayem, this deal marries the Trump administration’s preoccupation with critical mineral supply with the Bukele administration’s enthusiasm for mining development as a spur to growth. This agreement is likely to encourage investment reactivation in El Salvador’s dormant gold mining industry and to promote exploratory efforts to map critical mineral deposits that President Bukele claimed to exist during his 2024 launch of the new mining law. But this move will face substantial challenges. According to a national poll by the IUDOP in December 2024, 59 percent of Salvadoran respondents stated they did not think El Salvador was an appropriate country for metallic mining, more than double the percent (23 percent) that thought it was. The leaders of the Salvadoran Catholic Church, concerned about water supply precarity and heightened exposure to climate risks, have long supported the national mining ban. The Salvadoran government’s $1 billion debt swap, signed in 2024 with JP Morgan and the U.S. Development Finance Corporation, which requires a 20-year state investment in cleanup and protection of the Rio Lempa, could also serve as deterrent to aggressive mining promotion in the vicinity.”
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