The U.S. dollar rose more than 30 pesos yesterday. The impacts in Chile are driven by expectations that a trade war escalation, following China’s retaliation, will lead to lower growth and, therefore, lower demand for copper.
It wasn’t the commercial earthquake originating in the United States that was felt most strongly in Chile, but rather the retaliatory shock delivered yesterday by China. After the Asian country announced it would impose a 34% surcharge on U.S. imports — matching the tariff set by President Donald Trump — copper prices plummeted.
The value of the metal, Chile’s largest export, dropped by 6% on Friday after the acknowledgment of the tariff war, triggering an unusual spike in the dollar in the local exchange market.
China retaliated against the new U.S. tariffs on all U.S. imports and export controls on rare earths, intensifying the trade dispute with Trump. Beijing will impose a tariff on all U.S. imports starting April 10.
China’s decision sent markets into disarray, dragging down the prices of basic metals like copper. The drop in copper prices was the sharpest since the start of the pandemic, on March The steep decline pushed the Chilean peso down, causing the dollar to surge by 34.7 pesos to 981.5 pesos — the largest jump since July 2022.
The fall in copper prices and the rise in the exchange rate represent a major blow to the Chilean economy, especially if these effects persist. According to LarraínVial, every additional cent in the annual average copper price brings in around US$70 million in revenue, both reinvested in Codelco and received by the government. The same applies in reverse when the price drops.
Reasons Behind the Drop
The drop in copper prices occurred despite the fact that the United States did not include copper in the 10% tariff imposed on Chilean imports, along with other products like lithium and iodine. Experts explain the decline mainly as a result of concerns that a further escalation in the tariff war could reduce growth prospects for the world’s two largest economies, which would lead to a drop in copper demand.
“Copper wasn’t directly targeted with tariffs, so some buyers who were stockpiling may have changed their minds following this decision. But I think that’s a secondary factor. The main issue by far is the growing fear that yesterday’s announcements could trigger a major economic crisis,” said Juan Carlos Guajardo, director of Plusmining.
“The fear was amplified by China’s announcement of retaliation, as this increases the likelihood that the U.S., China, and potentially other countries will begin escalating with further measures and countermeasures, worsening the expected economic impact. Given the global impact, especially in China — the main consumer of copper — the outlook is that demand may have decreased, dragging down prices,” he explained.
According to Sergio Lehmann, chief economist at BCI, due to the tariffs imposed by Trump, they estimate that China’s growth will decline by around 0.9%. “The fact that there’s a response could add a few more tenths to that impact (…) this is bad news, as it will mean lower trade, lower growth, and certainly, an impact on every economy,” he noted.
Lehmann also sees that, in addition to lower growth expectations, there is a price correction for copper underway.
“This adjustment in copper prices was expected, considering that copper traded in New York had a significant premium due to positions taken by companies and, of course, speculators anticipating the risk of a tariff announcement,” he explained.
Source: El Mercurio