Nicaragua Threatened With Tariffs Of Up To 100 Percent
The Trump Administration has threatened to punish Nicaragua with exceptionally high tariffs—up to 100 percent on all of its exports to the United States. The Central American country is the largest producer of handmade cigars in the world, responsible for roughly 60 percent of the handmade cigars shipped to the United States. Nicaragua is the country where Padrón, Oliva, Drew Estate, A.J. Fernandez and Perdomo make all of their cigars, and other major companies such as My Father, Rocky Patel, Plasencia, J.C. Newman, General Cigar and so many others also have factories. If those tariffs were to go into effect, they would lead to considerable increases in cigar prices across the United States.
The threat was made yesterday, on October 20, by U.S. Trade Representative (USTR) Jamieson Greer, a member of President Donald Trump’s Cabinet. He was appointed by the President on April 1, and his role is to lead American trade negotiations. Greer issued a report yesterday targeting Nicaraguan president Daniel Ortega and his wife, Rosario Murillo, accusing them of human rights abuses and the dismantling of the rule of law in the country, among other things.
President Ortega served as Nicaragua’s president from 1985 to 1990, and became president again in 2007, 18 years ago. Earlier this year, the Nicaraguan constitution was amended and President Ortega named Rosario Murillo as his co-president.
“The Ortega-Murillo regime is engaged in unreasonable acts, policies and practices that burden and restrict commercial opportunities for U.S. companies in Nicaragua,” Greer wrote in his report. “Nicaragua engages in increasingly pervasive abuses of labor rights, restrictions on the right to property and religious freedom, and the elimination of rule-of-law protections against manifestly arbitrary government conduct. These acts, policies, and practices run contrary to basic norms of fairness, human rights and public order, as well as contrary to Nicaragua’s own laws and constitution, and various regional and international instruments to which Nicaragua is a party.”
The report recommended a series of potential actions, including suspending Nicaragua’s benefit from its trade pact known as CAFTA-DR (a 21-year-old free trade agreement that allows for easier trade between the Dominican Republic, several Central American countries and the United States) and tariffs of up to 100 percent on all Nicaraguan exports, immediately or phased in over a 12-month period.
Nicaragua’s importance to the cigar world cannot be overstated. Last year, Nicaragua shipped 253 million handmade cigars to the United States, accounting for 58.8% of all shipments. In addition, it’s a major tobacco producer, and Nicaraguan leaf is used all over the cigar world.
The country has grown dramatically as a cigar producer in a relatively short time, and its production has more than doubled over the past decade. Only 13 years ago, it lagged well behind the Dominican Republic, and accounted for only about one third of handmade cigar shipments to the United States.
In addition to being the largest producer of cigars, dwarfing even Cuba, Nicaragua is also a critical success. Cigars from Nicaragua have been named Cigar of the Year by Cigar Aficionado 10 times, far more than any other country, and there have only been 21 Cigar of the Year accolades awarded in the history of this magazine.
Nicaragua looms large in the cigar world, but as trading partners go, it is not a major factor in the U.S. economy, accounting for less than one percent of total U.S. imports. However, Nicaragua is exceptionally reliant on the United States as a market. Last year, the country exported $4.6 billion worth of goods to the United States, which is Nicaragua’s largest export market.
The present tariff on Nicaraguan goods shipped to the United States is 18 percent. That rate has been in effect since August. Nicaraguan cigars already face higher tariffs than those made in the Dominican Republic (10 percent).
Some cigar companies have already raised prices on cigars following the Trump Administration’s tariff war, which began in April.
As onerous as these threats are, Nicaragua has faced worse from the United States. In 1985, during President Ortega’s first term as Nicaraguan president, President Ronald Regan signed an embargo on all Nicaraguan goods, shutting out Nicaraguan cigars, rum and other goods from American soil entirely. Nicaragua was a far more marginal cigar producer in the 1980s than it is today, but the embargo caused companies to change their business models, with some opening up operations across the border in Honduras. The embargo was dropped in March 1990, nearly five years after it was signed.
Cigar companies may have to adapt in the face of extreme tariffs. It’s possible in the not-too-distant future that cigars may be bunched in Nicaragua (the filler and binder constructed), then shipped to Honduras for application of the final wrapper leaf before being shipped to the United States. It wouldn’t be surprising to see more Nicaraguan producers opening up operations in Honduras, like the Garcia family (makers of My Father Cigars) recently did. And as Nicaraguan cigars are becoming an ever-larger factor in European and other international cigar shops, an extreme tariff hike would likely result in a greater proportion of those products ending up in countries other than the United States.
It's uncertain if these threats will actually result in any action. Even if penalties are levied against Nicaragua, it’s possible they will be changed or withdrawn altogether, as tariffs have been implemented, increased and reduced again and again by the Trump administration.
