Why Are Ecuador and Colombia In a Trade War And What Does It Mean for Business?

For the past weeks, Ecuador and Colombia have locked horns in an escalating trade dispute that began with the former's president, Daniel Noboa, announcing a 30% tariff on select goods imported from Colombia.

Colombia responded with retaliatory 30% tariffs and the suspension of electricity sales to its southern neighbor, while Ecuador has increased charges on the transport of Colombian crude oil through one of its pipelines by 900%.

Colombian President Gustavo Petro has called for the two to resolve their issues, floating a "triple alliance" with the U.S. at a meeting with President Donald Trump last week. However, no off-ramp to the trade dispute has been found as of yet.

What is the dispute about?

Announcing the tariffs in a post on X, President Noboa accused Colombia of failing to cooperate on narcotrafficking in the region of their shared border, as well as citing Quito's $850 million deficit with Bogota.

Colombia's Foreign Minister, Rosa Villavicencio, in turn accused the Ecuadorian government of a lack of will to overcome the crisis, claiming that Colombia had repeatedly attempted to establish a dialogue and cooperate militarily over the border region.

Gerson Arias, an analyst at the Ideas for Peace Foundation, a Bogota-based security think tank, pointed to geopolitical reasons for Noboa's tariff confrontation, namely a "desire to align more closely with the United States."

The U.S. president threatened Petro, Colombia's first left-wing president, earlier this year for his alleged inaction to stem the flow of illicit drugs to the U.S. However, the two reconciled relations in a meeting at the White House on February 3.

Others suggest that Noboa's imposition of tariffs was intended to distract from his own government's inability to tackle organized crime; Ecuador's homicide rate has been the highest in Latin America for the past 3 years and the number of fatalities caused by gang violence rose by over 40% in 2025.

Glaledys Gonzalez Calanche, International Crisis Group's analyst for the Southern Andes, told National Post that the tariffs can be seen as a way for Noboa's administration to shift the blame onto Colombia, "rather than putting the focus on the limited policy successes they've had within this past three years with the armed conflict."

But the tariffs may have a counterproductive effect on Ecuador's security crisis, according to analysts.

Gonzalez predicts that "criminal groups who are dedicated to contraband will definitely use this opportunity to increase their operations and take advantage of the needs of local populations."

How significant will the effects be?

It is not just security analysts who are wary of the potential ramifications of the trade war; regional business leaders warn that these tariffs could also cause significant damage to production in both Ecuador and Colombia.

The major Ecuadorian exports affected by the tariffs are canned fish, frozen seafood, rice, palm oil, and wood panels, whilst the Colombian goods impacted include pharmaceuticals, coffee, sugar, pesticides, and finished vehicles.

In Ecuador, exporters estimate that they may lose up to $273 million per year as a result of these tariffs, with the president of the Ecuadorian Federation of Exporters saying Colombia represents a staggering 50% of exports for many of the affected companies.

With tariffs now set at 30%, these exporters will likely be priced out of the market and struggle to stay afloat, with nearly 200,000 jobs in the region now at risk as a result, according to Ecuador's Chamber of Industries and Production.

"What we are doing is leaving an open door for other suppliers and countries to displace our own production and giving space for the importation of other products from countries like China," Oliva Diazgranados, executive director of the Colombian Ecuadorian Chamber of Commerce, told National Post.

The Colombian and Ecuadorian economies are significantly integrated, meaning that tariffs will also cause adverse effects further down the supply chain.

Diazgranados explains that "of the $2 billion that Colombia exports to Ecuador, $1.3 billion consists of raw materials used for processing and finishing products in Ecuador." Consequently, costs of production for many Ecuadorian businesses, and thus the prices of their finished goods, will rise due to the country's own tariffs.

Colombia's suspension of electricity sales to Ecuador may also prove to be costly. In the two months prior to the dispute, Colombia supplied 6-9% of Ecuador's demand and, according to the Colombian Ministry of Mines and Energy, replacing this will cost Quito approximately $2 million a day.

Although Ecuador's demand for Colombian energy may not be high at the moment, it is extremely reliant on hydroelectric power, which provided 79% of its electricity in 2021. This means that a drought – like the one in 2024 that caused 14 hour blackouts – could be disastrous for Ecuador.

Noboa's response to the suspension of electric sales was to increase the transport fee for Colombian crude oil travelling through the Trans-Ecuadorian Oil Pipeline System SOTE pipeline by 900%, up to $30.

With the price of Brent crude at around US$66 per barrel, this move will all but force Colombian exporters to find other options.

Even if the dispute is resolved soon, its long-term impact is yet to be seen.

Diazgranados emphasized that these measures "undermine investor confidence; not only among Colombian businesspeople interested in investing in Ecuador [...] but also among Ecuadorian businesspeople themselves."

"And beyond both countries, it is [about] the message that is being sent to the whole world and to investors around the globe," she added.