A few weeks ago, Dr. Evan Ellis, research professor of Latin American studies at the U.S. Army War College Strategic Studies Institute, published an article in The Diplomat reviewing China-Costa Rica relations. Although trade is not the core focus of Ellis’ article, some of his remarks inspired me to offer my perspective on international trade relations between Costa Rica and China. My views are informed by my experience as Costa Rica’s commercial counsellor to China, and regional director in Asia of Costa Rica’s Export Promotion Agency (PROCOMER), from 2012 to 2024.
First, I would like to address the theoretical framework commonly used to describe Sino-Costa Rican trade relations and why it matters. Over time, Costa Rica’s foreign trade policy has evolved significantly. One pivotal shift was moving away from a mercantilist view rooted in Dependency Theory, originally authored by the Argentine economist Raul Prebish at the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). This theory classified nations as either the “center” – developed countries exploiting resources – or the “periphery,” which comprised developing countries lacking industrial capacity and value addition capabilities, trapped in a cycle of dependency. Working under this theoretical framework, not only Costa Rica but many economies around the world chose to pursue import substitution strategies (ISS), which yielded mixed results in Costa Rica’s case.
Following this experience, Costa Rica transitioned to export-promotion-focused strategies and intensified efforts to attract foreign direct investment (FDI). The rest is history, as the saying goes, because Costa Rica’s success in attracting FDI and consolidating its export strategy has become a widely studied case. The country steadily transformed from the 1990s onward and continues to grow thanks to these policies.
In short, Costa Rica opened its small economy to the world, negotiating and signing free trade agreements (FTAs) covering approximately 85 percent of the world’s GDP. Some of Costa Rica’s FTA partners include Canada, the United States, Mexico, Central America, the Dominican Republic, Peru, Colombia, Chile, Ecuador, the European Union, Singapore, China and South Korea, among others.
The logic behind economic liberalization is quite straightforward: Costa Rica lacks the economies of scale required to produce all the goods and services it consumes. The country is dependent on imports for electronics, vehicles, building materials, technology, clothing, food, and more. Policymakers understood that, for a small nation, the best way to increase overall welfare was to expand the production possibility frontier by liberalizing the economy.
It is undeniable that international trade and globalization have brought many benefits to the global community. In this context, Costa Rica recognized its potential to become a global leader by leveraging its strengths and attracting foreign investment, thereby integrating into advanced global value chains in sectors like semiconductors and medical devices.
In the past years, many politicians and academics are acknowledging that globalization also had significant impacts, especially in developed economies such as the United States, where the so- called “China shock” deeply affected industries in the American Rust Belt – regions that are strongholds of President Donald Trump. For economists this has always been a well-known fact: while trade liberalization increases general welfare, some sectors may experience declines. This, however, has been less true for developing countries like Costa Rica, which has largely benefited from globalization and trade liberalization without suffering the severe backlash of losing entire sectors.
Washington’s new trade bilateralism and global trade wars, especially with China, can be understood within these theoretical frameworks. After all, following its accession to the WTO, China has been accused of failing to abide by many of its multilateral commitments, generating an imbalance that some sectors of the U.S. government understandably see as unsustainable. Washington views Chinese monetary policy as dangerous and even describes it as currency manipulation.
But Costa Rica’s economic situation differs vastly from that of the U.S. While emphasizing an “enormous trade deficit” with China as inherently problematic may make sense from an American viewpoint, this neomercantilist outlook – which fears trade deficits and prioritizes accumulating reserves – is at odds with Costa Rica’s trade policy and long-standing commitment to open markets and global economic integration.
Since the 1990s, successive Costa Rican governments have rejected protectionist and isolationist approaches, recognizing that economic welfare is best advanced through active participation in global trade. What does it matter if Costa Rica imports more from China than it exports to it? Access to affordable, high-quality Chinese goods enhances the well-being and welfare of Costa Rica’s society.
Also, the trade imbalance is relative and depends on perspective. For instance, in 2024, Costa Rica’s per capita exports to China reached approximately $75.5, while China’s per capita exports to Costa Rica were only $2.30. Given the vast disparity in population – 5 million versus over 1.4 billion – what constitutes a “perfect” trade balance? Should Costa Rica be one of the few countries that maintains a trade surplus with China, a feat not even achieved by the United States itself? Is a trade deficit acceptable? And if so, how much of a deficit is good or bad for Costa Rica, taking disparities into consideration?
Some may ask: how is it possible for Costa Rica to run a trade surplus with the United States while running a large deficit with China? The answer lies partly in the makeup of Costa Rica’s exports to the U.S., which mainly consist of bananas, pineapples, medical devices, and coffee. These industries include a strong presence of foreign companies with deep historical ties to the United States, engaged in banana and pineapple farming in Costa Rica with the U.S. as their main export market. Medical device manufacturing follows a similar pattern, with American and other foreign firms operating out of Costa Rica to export to the U.S.
Moreover, geographical proximity and logistics advantages facilitate trade, and up until a few weeks ago, the Dominican Republic-Central America FTA with the United States – which now seems invalid for the Trump administration – was also key to this good outcome. Also a higher per capita income in the U.S. (about $78,000) compared to China (about $13,306) reflects differences in purchasing power and market dynamics.
Ellis rightly points out that Costa Rica’s desire to export more to China hasn’t been fully realized. During my years in Beijing, this was a common grievance among most of my trade colleagues. However, the picture is not entirely bleak. As reported by Costa Rican newspaper La Nacion, precisely during the time period of my appointment as commercial counsellor to China, Costa Rican exports grew by 965 percent in those 13 years since the FTA took effect. I personally helped facilitate tens of millions of dollars in new exports to China, across diverse Costa Rican products and led negotiations to sign multiple protocols permitting exports of products of animal and plant origin.
Unfortunately, as the Trump administration has discovered, China maintains stringent control over its capital accounts. The Chinese government has protected the renminbi’s value for more than two decades, managing its exchange rate within a narrow band of 6 to 8 RMB per U.S. dollar. This policy makes local products cheaper and imported goods relatively expensive for Chinese consumers. It artificially encourages domestic production, supports Chinese exports globally by keeping prices competitive in dollar terms, and makes foreign products costly by comparison. Meanwhile, Costa Rica faces high production costs – such as high energy prices, infrastructure challenges, poor logistics, security concerns, taxes, and social security payments – that further hinder Costa Rican products’ ability to compete in the Chinese market. If foreign goods are already considered expensive for the average Chinese consumer, imagine the difficulty for lesser-known, higher-cost Costa Rican products to gain a foothold.
Recent reports note that China’s shift from an export-oriented to a more consumption-oriented economy is now central to trade talks with the United States. This development, if it came to become a reality, would be very positive for the global economy. Imagine a world in which China not only remains an export powerhouse but also significantly increases imports from across the globe – such a shift would bring broad benefits both for China and the world.
Costa Rica and the United States are very different nations with economies that might not always benefit from the same economic and trade policy choices. While for Trump China is sometimes seen as a problem, a strategic competitor, or even a threat, that might not be the case for Costa Rica. Costa Rica not only has increased exports to the China market, but it has also benefited from importing many products that are welcomed and needed by local consumers, or used as raw materials to produce locally and sometimes export to the region. In times when the U.S. is placing tariff barriers across the board, with total disregard for its bilateral and multilateral agreements, trade between Costa Rica and China could turn into an interesting diversification option.
As I frequently expressed during my time in China regarding Sino-Costa Rican trade relations: when studying or analyzing trade relations between China and Costa Rica – or any other country for that matter – one must place them in their appropriate and fair context.