Chile looks to rise on export growth in 2011

By: | at 08:00 PM | Channel(s): International Trade  

Despite setbacks of 2010, including the devastating earthquake in February (and subsequent rescue of 33 trapped miners in October) Chile seems poised to regain its economic initiative based on export growth. The question for the Obama Administration, is, where will US companies will fit in the mix?By George Lauriat, Editor-in-Chief, AJOTNearly a year ago, Chile was hit with an earthquake and tsunami, which dampened what would have been a very satisfying year of economic recovery for South America’s fifth largest economy (but 2nd largest GDP per capita). It’s estimated that Chile’s foreign trade hit US$121.22 billion in 2010, up nearly 32% over a weak 2009. After a tepid fourth quarter (2010) Chile has again regained the initiative in the first quarter (8.1%) and began growing based on copper, agricultural and food exports. Copper export revenues were particularly strong spurred by record high prices for copper. Not coincidentally, state-owned CODELCO is the world’s largest copper-producing company. Earlier this month, the Chilean central bank issued a statement that the economy could grow by over 11% in March compared to last year. Overall, Chile still grew by 5.2% in 2010 and government forecasts call for the economy to grow by 6% in 2011.
Chile’s economic growth is pinned to exports. It’s estimated that exports account for over 42% of the nation’s GDP, far and away the largest segment of the economy. While copper and other minerals make up a bulk of the exports, non-mineral exports include forestry & wood products, wine, fresh fruit and processed food, seafood & fish products make up a majority of the ocean container business.
US-Chile and the case for FTA
Since the US and Chile Free Trade Agreement (FTA) entered into force in 2004, bilateral trade has more than doubled with two-way goods trade totaling nearly $18 billion in 2010, with nearly a $4 billion surplus in favor of the US. The US is Chile’s second largest goods trading partner overall (behind China), and is the largest foreign investor 24% share of foreign direct investment from 1974-2010. During 2011, under the FTA, the US and Chile will eliminate tariffs on 134 products which is expected to aid the continued bilateral growth in trade. But the US has trade and investment competition in Chile.
Chile’s trade with Europe grew 20% in 2010, reaching US$ 21.4 billion largely based on US$ 2.11 billion increase with Italy and Belgium. But the real competition for US companies is with Asia. Bilateral trade between Chile and Asia grew an astounding 44% in 2010, with China leading the surge. China has lodged itself in as Chile’s main trade partner with US$ 25.14 billion in trade in 2010, up US$ 7.26 billion over 2009. Chile was the first Latin American nation to sign an FTA with China in 2006 and in 2010 expanded the protocol to include the service sector.
However, most of the trade with China has been copper. It is estimated that 85% of Chile’s exports to China are copper. From the PRC’s point of view, Chilean copper accounts for over 30% of China’s copper imports. Both China and Chile would like to see an increase the diversity of the Chilean exports and wood pulp, cherries and wine have all become important niche exports. There is the classic elephant and the mouse problem with the Sino-Chilean economic relationship. Any downturn in the Chinese economy has a disproportioned impact on the Chilean economy. In the case of the US, the Chilean exports tend to be fruits and wines while the imports are often equipment and other goods that support exports. In that sense, the US manufacturers have a stake in Chile’s mineral exports to China. The increase in Asia wasn’t just China. Chile’s trade with Japan, the second largest export destination, grew at 57%, although the future trade in growth post-quake and tsunami is difficult to predict. Chile has also reached out to partners in Latin America. Trade with Mexico was up 46% while bilateral trade with Brazil was up nearly 60%. Even Peru trade with neighboring was

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American Journal of Transportation