Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
Chile continues to be a strong trading partner and export market for U.S. companies, largely due to its open market policies, zero tariffs, democratic government, solid business practices, and low corruption. Future growth will depend on trends in the mining sector and the commodity prices for copper and lithium, both important drivers of Chile’s international trade. Chile elected a new President in December 2021, left-wing candidate Gabriel Boric, who will take office in March 2022.
Chile remains a leader in the region, widely admired for its historic economic and political stability, transparency, and strong democratic institutions. This strong foundation gave Chile the ability to address widespread social unrest through political means and peaceful elections. Chile is also admired for how it mitigated the spread of COVID-19, through a strong program of mobility restrictions but also a vaccination campaign in which almost 90% of the population is now fully vaccinated.
After a 40-year run of economic stability, we are entering a period of uncertainty. Investors and the business community are anxious about the current trend toward socialist reforms and potential change. Following widespread social unrest in October 2019, Chile’s voters demanded significant change to address socio-economic grievances. A number of sectors involving U.S. companies, including the pension and insurance, mining, and energy sectors, are facing greater operating pressure during the pandemic from pending legislation in the Chilean congress.
Chile’s Constitutional Convention continues the work of drafting a new national constitution (replacing the current constitution established in 1980 under the Pinochet dictatorship), which will be ratified in 2022. Most analysts do not believe a new constitution will radically alter Chile’s political and economic systems, as the legislation enabling this process stipulates that the new text must “respect the character of the Republic of the State of Chile, its democratic model, and any international treaties ratified by Chile currently in force.”
To spur economic recovery in 2021, the President Piñera provided several rounds of economic stimulus and pension fund withdrawals, to increase overall spending by both the government and consumers. Consequently, economic activity was buoyed in the short-term, and Chile is currently expecting to hit 9.5% GDP growth for 2021. As the government stimulus measures wind down, analysts forecast significantly lower economic growth in 2022 in the range of 1.5 – 2.5%, which is in-line with Chile’s pre-pandemic levels of GDP growth ranging from 1.5 – 3.0%. Inflation is a current concern, as consumer prices are sharply rising at the end of 2021. Analysts expect the rates to drop somewhat in 2022, before returning to pre-pandemic levels by 2023. To counter rising inflation the Central Bank of Chile has instituted interest rate increases in an accelerated effort to normalize monetary policy.
Chile’s overall trade figures are up, due to strong exports of mining and agricultural commodities, and sharp increases in imports of consumer goods. Chile’s economy is strongly dependent on the price of copper, which hit record highs in 2021 but is expected to come down in 2022. The high demand for consumer goods is expected to cool considerably, especially in the face of rising inflation. Some analysts predict Chile will enter a recession by the second half of 2022. Overall, the predictions are that Chile will continue its recovery in 2022 and begin to normalize to pre-pandemic levels by 2023.
As the United States - Chile Free Trade Agreement (U.S.-Chile FTA) concludes its eighteenth year, trade of products and services between the two countries continues to be a resounding success. As of January 1, 2004, duties were reduced to zero on 90 percent of U.S. exports to Chile, and in January 2015, all remaining tariffs were phased out, such that all U.S.-origin products enter Chile tariff free. In 2020, bilateral trade in goods and services between the United States and Chile totaled $28.8 billion. Overall, the U.S. enjoyed a $5.2 billion trade surplus with Chile in 2020, a trend that has continued into 2021.
Chile continues to pursue market-oriented strategies, expand global commercial ties, and actively participate in international issues and hemispheric free trade. Chile is a member of the Pacific Alliance, the Rio Group, an associate member of Mercosur, a full member of APEC, and a founding member of the Comprehensive and Progressive Trans-Pacific Partnership (CP-TPP) and UNASUR. Chile became the 31st member of the OECD in 2010, only the second Latin American country to join after Mexico.