Trade War Between United States And China

Chile has been a member of the World Trade Organization since 1st January, 1995. Chile imports a majority of fuel oil, civilian aircrafts and parts, petroleum products and computer accessories with U.S.A being the largest importer contributing to more than 19.1% of total imports. Top exports of Chile are refined copper, copper ore, wine and fish fillets with China, followed up closely by the U.S.A providing 14.2% and 11.3% of the export markets respectively.

The U.S.-China Trade War includes the cardinal trade partners of Chile averse to each other.

Though at a bird point view this may seem a beneficial situation for Chile, there are several other matters to be accounted for.

Chile entered into an FTA (Free Trade Alliance) with USA on 1st January, 2004. It resulted in a sustainable economic growth in Chile, with the economy growing at an average annual rate of 5.7%, inflation dropping from 500% (in 1973) to 18% and unemployment decreased from 12% to 4.5%. US is also a principal investor in Chile’s banking, insurance, forestry, mining and agricultural and light industries.

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As a result of the high returns on foreign investment a total of $ 1.3 billion has flowed into Chile by 2000 alone. The FTA with US, the world’s largest economy, has not only created better paying jobs in Chile, but also ensured a long term success possibility for Chile in trade markets. Moreover, there is little competition faced by Chilean farmers growing grapes, plums, peaches and apples since they are not in direct competition with American farmers owing to a reverse in seasons between the two countries.

Several other benefits include:

According to the Central Bank of Chile, Chilean exports to US grew by 12.1% to a total of US $ 1.17 billion recently.

After leading Chilean fruit exporter Subsole Exportadora de Frutas found it attractive to import Californian citrus to meet the demand during Chile’s off season, the FTA in return, immediately reduced the Chilean duties on products such as clementines form 6% to 0.

As compared to the FTA with the US, the FTA with China has proved to be less constructive. According to World Bank Senior Economist Augusto de la Torre, China has provided a significant boost to Japan and other East Asian countries but this is stark contrast with Chile where China has failed to result in productivity gains, technology and learning spillovers.

The FTA could bring competition challenges since China provides a market with extremely low production and labor costs, which local companies may find difficult to compete with. It may be possible that Chilean markets may be flooded with Chinese products, especially with the rapid decline of China’s trade with USA. The micro, small, medium enterprises would find themselves at an unyieldingly unfruitful position. As compared to the low tariffs imposed by US, as of 2010, China would take more than a decade to reduce its tariffs on Chilean imports. Chile also faces stiff competition with New Zealand in the Chinese apple market.

Thus, the gravity of the US-China trade war may lead to loss of indigenous industries in Chile. USA’s low tariffs, absence of stiff competition and acceptance have greatly benefitted Chile in the past and has a promising future. The concerns are majorly over the trade with China which imposes extensive risk in the future of Chile. This issue must be resolved to ensure a substantial and sustainable economic future for Chile.