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The risks Chile's mining industry faces as the US and China decouple
![The risks Chile's mining industry faces as the US and China decouple](https://cdnimg.bnamericas.com/rWmxmPamJhnkZmdQZuXCHWztGkgFrNYpOpXbXspZrjuIiDhiwPswPmcYvkGCiShU.jpg)
Questions about Chile's role in the critical minerals market and the country's need to maneuver amid US-China tensions reemerged after Donald Trump accepted the Republican Party's presidential nomination at its convention in Milwaukee and presented J.D. Vance as his running mate.
Although the economic containment of China is bipartisan consensus in Washington and generally supported by voters, a potential Trump-Vance administration is likely to step up pressure.
In May, the White House announced a 100% tariff on EVs to "protect American manufacturers from China’s unfair trade practices," and in Milwaukee Trump promised tariffs of 100-200% on EVs not manufactured in the US.
While serving as senator representing Ohio, Vance claimed that China was flooding the US with cheap goods that destroyed jobs in the country.
Chile has free trade agreements with the US and China, entitling it to privileged access to both markets, which on the flipside also creates problems if both powers decouple.
“If the US were to disfavor China in trade matters, this would have a devastating effect on trade and the copper price, and with that, the demand for copper in China would decrease, being very negative for Chile,” Jorge Heine, former Chilean ambassador to China, told a webinar hosted by Fundación Chilena del Pacífico.
Heine, now director of the Frederick Pardee Center at Boston University, urged Chile to deploy diplomatic skill and maintain the position of active non-alignment it implemented over the last years. Under this approach, Chile does not openly favor any of the powers.
President Gabriel Boric has met with his Chinese counterpart Xi Jinping and US President Joe Biden to strengthen bilateral relations, as the two countries are Chile's main trade partners.
Recently, a group comprising authorities from the US and Chile determined that the latter will gain access to benefits under the former's Inflation Reduction Act, especially in regard to lithium as a key input to strengthen the US battery and EV industries.
Last year, Chile's lithium exports totaled US$7.19bn, with 94% shipped to Asia, where China accounted for 64.7%, while North America accounted for 2.4%. China is also the main destination for Chilean copper, importing volumes worth US$24bn in 2022, compared to US$3.57bn in shipments to the US.
Heine said Chile's neutrality is crucial, considering that China's savings rate is 40%, among the highest in the world, which generates a capital surplus that it must use. “We could see an increase in Chinese investment in Latin America in the coming years,” he said.
The US, on the other hand, does not offer similar prospects. "If we cannot sell copper to China, will it be possible to sell to the US? The answer is no," Osvaldo Rosales, former director of the international economic relations department, said during the webinar.
The IMF has revised upward its growth projection for China to 5% this year, while the US would register 2.6% and Chile 2%. The IMF suggests that Chile continues promoting investments to achieve a sustainable and diversified economy.
US senator Marco Rubio (R-FL) recently presented a protectionist bill with measures pertaining to critical minerals.
The proposal includes tariffs of up to 800% on products like permanent magnets, batteries and solar panels that are manufactured in China or by China-controlled companies.
"The US and its partners must end communist China’s critical mineral industrial monopoly," Rubio said in a statement.
He added that the framework will encourage "work with trade partners to create tariff-free supply chains amongst themselves, sending a market signal that would quickly shift capital investments away from China and towards the United States, partners, and allies."
Both Heine and Rosales agreed that a decoupling would affect international finance, given that many Western companies are operating in China, and that the country is key to promoting emerging economies.
China supplies 80% of Chile's photovoltaic modules, 60% of EVs and 95% of electric buses, Rosales said. Of the 2,480 electric buses operating in Chile's public transport system, at least 1,700 were provided by Chinese company BYD.
Although Chinese investment is not the biggest driver in Chile's mining industry, BYD and Tsingshan have plans to install lithium cathode material manufacturing plants and Tianqi holds 24% in local lithium producer SQM.
In search for private partners for the lithium industry, Chile's government said of the 88 expressions of interest it received, three came from the US and two from China.
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