Chile’s Resilient Economy Faces Potential Threat from U.S. Copper Tariffs#

Economic Resilience and Growth#

• Upward Growth Revision: The Central Bank of Chile revised its 2025 GDP growth forecast to 2–2.75%, up from the IMF’s April 2025 projection of 2%, reflecting robust export performance despite U.S. tariffs imposed in April 2025.
• Export Strength: Chile’s exports, particularly copper, have performed strongly, driven by relatively high global copper prices, supporting economic stability.

Impact of U.S. Tariffs#

• Current Tariffs: Since April 2025, a 10% U.S. blanket import tariff has removed duty-free access for most Chilean exports under the Chile-U.S. Free Trade Agreement, particularly affecting food products. Copper, Chile’s main export (comprising ~33% of U.S. exports), remains exempt for now.
• Limited U.S. Market Share: The U.S. accounts for 15% of Chilean exports, mitigating the overall impact of tariffs compared to China, which receives 52% of Chile’s copper exports.

Potential Copper Tariff Risks#

• U.S. Investigation: The U.S. Department of Commerce is investigating copper imports under Section 232 of the Trade Expansion Act, with political pressure to prioritize domestic mining for national security. A potential 25% tariff on copper, matching steel and aluminum tariffs, could disrupt Chile’s exports.
• Global Market Pressures:
  • Price Volatility: Copper prices fell 6% to $4.005 per pound on the London Metal Exchange, the lowest since January 2025, amid U.S.-China trade tensions and fears of a global economic slowdown.
  • New Supply: The discovery of a major copper mine in Argentina and expanding Chinese copper refining (nearly 50% of global capacity) could depress prices and challenge Chile’s refineries (10% of global production).
• Economic Impact: As the world’s largest copper producer, with copper accounting for 50.8% of 2024 exports, Chile’s economy and current account (relying on ore/metal exports for ~50% of revenues) are vulnerable to price drops or export volume reductions.

Political and Economic Risk Profile#

• Stable Risk Ratings: Chile’s short-term (ST) political risk is rated 2/7 (low risk) due to strong financial market access, adequate foreign exchange reserves, and modest short-term external debt. Its medium-to-long-term (MLT) risk is 3/7, reflecting moderate external debt, low economic diversification, but good institutional quality and healthy public finances.
• Fiscal Concerns: The 2025 budget assumes a copper price of $4.26 per pound, close to current levels ($4.237). A sustained price drop could pressure public debt, though structural revenues (based on $4.09 per pound) mitigate immediate spending cuts.

Broader Context and Sentiment#

• Trade Dynamics: Chile, with extensive free trade agreements, faces challenges in a protectionist global environment. Experts suggest diversifying markets and strengthening trade agreements to maintain stability.
• X Sentiment: Posts on X highlight concerns about Chile’s copper export model, noting losses from exporting unrefined copper concentrates at below-market prices ($2,500/ton less than LME), costing over$6 billion annually. There’s also a call for manufacturing higher-value copper products to boost growth.
• Geopolitical Factors: U.S.-China trade tensions and China’s retaliation (consuming 52% of Chile’s copper) heighten risks of demand slowdowns, potentially exacerbated by Middle East conflicts.

Conclusion#

Chile’s economy remains resilient, with revised GDP growth forecasts of 2–2.75% for 2025 and strong export performance despite U.S. tariffs. However, potential U.S. copper tariffs, coupled with global price pressures from new supply and trade wars, pose significant risks to its copper-dependent economy. Diversifying export markets and enhancing value-added copper production could mitigate vulnerabilities, but Chile must navigate a complex global trade landscape to sustain its economic stability.