How Civil Protests Can Affect US Exports to Chile

What has been taking place with the protests?

In February 2019, TradeMoves highlighted Chile's strengths as an export market. We cited a high GDP per capita, preference for US products, and free trade policies as examples of why you should look to export to Chile. Since 2015, 100% of US exports to Chile are duty free as a result of the US-Chile FTA.[1] Chile has largely been considered the economic poster child for Latin America. In the 1980s, Chile opened its borders and deregulated during General Augusto Pinochet's reign. More recently, Chile has further embraced the idea of economic liberalization which has led to an increase in both foreign direct investment within the country and international trade.[2] Since Fall of 2019, Chileans have become increasingly dissatisfied with rising costs and low wages, among other issues. Month-long protests coupled with a week of imposed martial law culminated in a million-person protest in the capital of Santiago in October 2019. The country once thought to be most stable in Latin America is now entering a transition phase of reform.

What Effect Will This Have on Cross-border Trade?

In the short-term, Chile's economy has slowed down due to violent protests. The economic growth forecast for 2019 was cut from a range of 2.4 - 2.9% to a range of 1.8 - 2.2%.[3] With less growth, comes less capital that Chileans will have to invest in importing products from the rest of the world. Looting of supermarkets has been a common form of protest, disrupting the sale of foreign products. Ports have been paralyzed throughout due to labor strikes, making shipping exports to the country more difficult.[4] Chile had to resign as host of the APEC summit, which would have brought imports and foreign direct investment from Asia-Pacific countries.[5]

In the long-term, Chilean legislators have suggested that significant economic policy changes may be coming, which can affect potential US exports to the country.[6] A referendum to have a new constitution will be voted on in April. The delegates who will eventually debate this new constitution will look to address many of the concerns of inequality within the country, which protesters chalk up to neoliberal free-trade policies.[7] Low and middle income Chileans feel that high paying jobs are unattainable, in part, due to Chile's historical propensity to open its market. The many FTA's that Chile has entered, including one with the US which has helped US exporters, could be in jeopardy as new leadership looks to depart dramatically from the dictator-era free-trade economic policies.

What to Look Out for During the Constitutional Process? 

This upcoming constitutional process will take a while, but US exporters should watch with concern, as the "jewel" of the region could potentially look to end pro-trade policies that have helped US exporters. Additionally, in the short-term, there are details to be hammered out as to what a potential new constitution will look like. Should the delegates at the eventual constitutional convention fail to meet the concerns of Chileans, further protests and labor strikes could interrupt shipping timeframes, and create supply chain problems for companies relying on Chilean exports for intermediate goods and raw materials. Many of the same politicians have been in power since Chile transitioned to a democracy in 1989.[8] The updated constitution will likely usher in an energized coalition of new leadership. It is not yet known what new leadership's trade policy will look like, but if it mirrors what community leaders have denounced throughout the protests, Chile may become a more protectionist country.

Finally, the situation of inequality is not unique to Chile, and other US trading partners in the region such as Colombia and Ecuador have also seen protests rejecting open-market economic ideas. These countries may look to follow Chile's lead with whichever course it chooses to go down regarding trade and other economic policies.

Recommendations

Businesses should monitor what happens in Chile as it can serve as a case study of how US trading partners respond to increasing popular anger towards globalization and, in part, open trade policies. In the short-term, the risks and costs of exporting to Chile may increase due to labor strikes and shipping disruptions. Importers of Chilean raw materials or intermediate products may see price increases and delays in receiving goods. In the long-term, as Chile negotiates a new constitution, and a new government is formed, the country known as a bastion of open markets may look to reject free-trade policies and increase border restrictions.

Let us know how TradeMoves can help your company in its US exports to Chile and other important export destinations.


Andrew Polinski
[email protected]


[1] <https://ustr.gov/trade-agreements/free-trade-agreements/chile-fta> US-Chile FTA Agreement, USTR
2 <https://www.piie.com/publications/papers/williamson0204.pdf> The Washington Consensus as Policy Prescription for Development?, Peterson Institute for International Economics, 13 January 2004
3 <https://www.reuters.com/article/us-chile-economy-gdp/chile-sees-2019-econom ic-growth-of-18-to-22-due-to-protests-idUSKBN1XF2FC> Chile sees 2019 economic growth of 1.8% to 2.2% due to protests, Reuters, 5 November 2019
4 <https://www.maritime-executive.com/article/dockers-strikes-hit-chile-s-port s-as-civil-unrest-continues> Dockworker Strikes Hit Chile's Ports as Civil Unrest Continues, Maritime Executive, 14 November 2019
5 <https://www.cnn.com/2019/10/30/americas/chile-protests-apec-cop25-hosting-c anceled-intl/index.html> Chile won't host APEC and COP25 summits, 30 October 2019
6 <https://foreignpolicy.com/2019/11/23/chile-upheaval-protests-model-muddle-f ree-market/> From Model to Muddle: Chile's Sad Slide Into Upheaval, Foreign Policy, 23 November 2019
7 <https://www.aljazeera.com/news/2019/11/chile-agrees-hold-referendum-constit ution-5-191115221832042.html> Chile agrees to hold referendum on constitution: 5 things to know, AlJazeera, 15 November 2019
8 <https://foreignpolicy.com/2019/11/05/chile-ongoing-protests-pinochet-dictat orship-looms-large/> Pinochet Still Looms Large in Chilean Politics, Foreign Policy, 5 November 2019