Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
With civil unrest in late 2019 and the impact visited on the country from spread of the COVID-19 virus, Chile experienced significant economic decline in 2019-2020. Estimates by Chile’s Central Bank, the International Development Bank and others project that the economy could decline by about 7.5 percent in 2020. But the same projections also show, absent any civil strife and outbreaks of the pandemic, that Chile is poised to recover quickly and likely to enjoy significant growth in 2021 upwards of five percent. Growth will depend on trends in the mining sector, particularly in the pricing of copper and lithium, both important to Chile in its overseas trade.
In spite of recent developments, 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.
As the United States - Chile Free Trade Agreement (FTA) concludes its sixteenth 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 2019, U.S. exports of goods totaled $15.7 billion, or more than four times the pre-FTA figures. Bilateral trade in goods between the United States and Chile totaled $26 billion. Overall, the U.S. enjoyed a $5.3 billion trade surplus with Chile in 2019, a trend that has continued into 2020, although the level of trade has declined since April (as of August 2020).
In addition to the $12.9 billion in goods, the U.S. exports about $5.6 billion in services to Chile. Chile is the 20th largest goods trading partner for the U.S., and the U.S. is Chile’s second-largest trading partner after China, which overtook the U.S. as the largest trading partner four years ago. Chinese-Chilean bilateral trade has increased significantly in recent years; however, the United States maintains a broader and more dynamic and diverse trading relationship with Chile.
According to the United Nations Conference on Trade and Development (UNCTAD), global foreign direct investment (FDI) inflows to Chile grew significantly in 2019 with inflows of about $11 billion. Total FDI stock from the U.S. in Chile stood at $26 billion at the end of 2018 (last year of information available), representing the largest source of FDI in the country. Chile has generally held a reputation of general macroeconomic stability, earning at least “AA” ratings or the equivalent from Moody’s, Fitch, and other rating agencies. The effect of civil unrest (in October 2019) remains to be seen in terms of any changes in these ratings.
The Chilean peso floats freely on international markets. As Chile’s economy is based largely on the mining industry, the economy – and therefore, the value of the peso – depends largely on the trends in the price of copper and lithium, its main exports in this sector. Over the last year, the peso has fluctuated between 650-750 Chilean pesos (CLP) to the U.S. Dollar.
Chile also performs well in terms of government efficiency, low levels of corruption, and openness to foreign trade. Chile is consistently the highest-ranked country in Latin America in terms of economic competitiveness. According to the World Economic Forum’s (WEF) Global Competitiveness Report 2019, Chile maintained its ranking of 33rd in the world for competitiveness, while IMD assessed Chile to be 38th worldwide, both surveys ranking Chile highest in the region. WEF estimates Chile’s GDP per capita (Purchasing Power Parity) to be about $24,000. Transparency International ranks Chile 26th out of 168 countries in its Corruption Perceptions 2019 Index.
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.
Chile has successfully negotiated Free Trade Agreements with 62 countries around the world, notably with Europe, China, India, and North America, among many others. As such, competition is fierce, and Chile’s nearly 19 million citizens have excellent access to the world’s products and services. This offers a unique opportunity for U.S. exporters interested in expanding their businesses in arguably the most open and stable market in Latin America.
In 2010, the United States and Chile concluded the negotiations of a bilateral tax treaty, which was ratified by the Chilean Congress in September 2015. The treaty has not yet been ratified by the U.S. Senate.