Chile: Impact of US-China trade war

Chile: Impact of US-China trade war

Chile, the leader among Latin American economies, is finding itself in a tricky situation to increase economic growth. This is something that has become a recurrent concern in the last administrations of the Andean country. 

The current conservative government of Sebastián Piñera came to power with the promise of boosting economic growth after the slowdown in the second term of Michelle Bachelet’s administration. Although Chile continues to be one of the largest growing economies in the region (with an autonomous central bank, low inflation and numerous public policies), Piñera faces a much more difficult path ahead than was expected

In the first year of the Piñera’s mandate, growth climbed to 4%, more than doubling the 1.8% reached by the previous administration. However, the current financial year will unlikely reach the goal of  3% and 3.5%, despite the government’s ongoing reassurances of the march of the Chilean economy.

There is a disconnect between ground realities and the high expectations of the population, fuelled by Piñera’s team during the campaign. Both the president and his government have experienced an acute drop in popularity 16 months after his arrival in power.


The Chilean population is demanding explanations for the slowdown in growth. 

In an attempt to reduce the burden of Piñera’s administration, the government claims that external actors drive the current situation. Yet, this argument has been heard far too many times and even rejected by the same conservatives when the socialist Bachelet was in power. They attributed the deceleration exclusively to the government’s reforms, criticised for their multiplicity and poor implementation. However, what is happening to Chile now seems to be pushed by a series of complex external factors which engulfs most states. 

According to Jorge Sahd, Director of the Centre for International Studies of the Catholic University of Chile, “the commercial war between the US and China directly affects Chile”. This argument stands on the fact that this trade war hits small, open and exporting economies, like Chile. The US and China are the main commercial partners of the Andean country. Both these countries have a vital role in the functioning of the economy as main investors in Chilean companies and importers of Chilean products. 

This is exacerbated in sectors such as mining. The largest copper mine on earth, Escondida, which produces around 5% of the world’s copper is found in Chile. Chilean copper production is 30% of the world’s total and  its production equals to 20% of total GDP and 60% of mining exports. Currently, mining exports represent around 50% of total exports.  In recent years, when the international prices were high, the sales of this metal reached between 20% and 25% of the fiscal income, becoming “the salary of Chile”. But, since the trade war started, the price of copper has dropped severely, leaving a “very exposed” Chilean economy, at the mercy of US and China. 

The Chilean economy is one of the many victims of the trade war. Proof of that is May’s year-on-year growth of the country, which dropped to only 2.3% GDP.


Chile’s growth depends deeply on international trade. This strategy brought the country to the top economy of the Latin American continent. Yet, openness and reliance in commerce have become as much of a curse as a virtue. The devastating effects that US’s and China’s protectionism has on the Chilean economy urge to reshape the economic model that Chile has pursued for the last 30 years. This change concerns two essential aspects:

First, diversification of markets. Chile needs to become less dependent on the US and China. These two countries have shown a high level of political and economic instability, and while the trade war continues, further protectionist measures will be applied, which might negatively affect the Chilean access to those markets. A solution would be to enlarge the scope of access of Chilean products to emerging economies in the Asia Pacific, or even within the Latin American continent.

Second, diversification of exports. The Chilean economy is over-dependent on copper exports, which exposes the national economy to several geopolitical and economic risks. Hence, the Andean economy should boost exports of products such as salmon, wine and olive oil, where the Chilean economy is secure, and whose exports have multiplied in the face of more enormous global appetite. Meanwhile, Jorge O’Ryan, Director of ProChile – an entity of the Ministry of Foreign Affairs that promotes the Chilean products abroad – states that in 2018, exports of goods other than copper accounted for 51% of the total, with a total value of $38 billion. Yet, implying a not-so-positive second reading: 49% of the sales abroad continue to depend on copper. 

In Conclusion

The confidence indicators, for both businesses and consumers, have fallen as a result of the financial climate. Many believe that the Chilean’s economic problems are related to the reforms that have not been agreed upon in a highly polarised parliament, where Piñera’s ruling party does not have a majority and has shown a lack of political means to reach consensus with the opposition in economic measures. Piñera’s campaigning slogan “better times”, seems to clash with the reality and Chileans know it. The growth numbers are lower than promised, and the much-awaited improvements in employment and salaries are far from being actualised.

The conservative party will likely prolong its administration in La Moneda. But while the US-China trade war persists, Piñera’s administration will be remembered either as the change that the Chilean economy needed or as another victim of the Trump-Jinping trade war.

Categories: China, Under The Radar

About Author

Tomas Slangen Velasco

Tomas Slangen Velasco holds an undergraduate in International Relations from the Blanquerna School of Communications and International Relations, in Barcelona. Moreover, he holds a Master of Arts in International Conflict and Security from the University of Kent’s Brussels School of International Studies. He specializes in Latin America and spent a year living in Argentina and studying regional political and security issues.