Potential US tariffs on copper from Chile and Peru a major concern.

BY SCOTT B. MACDONALD

Copper is one of the essential metals needed to wire the global economy. It is central to data centers, electric vehicles, renewable energy systems as well as the next industrial revolution developing around AI. According to the International Copper Association, one ton of copper gives functionality to 40 cars, powers 100,000 mobile phones, enables operations in 400 computers and distributes electricity to 30 homes. Simply stated, without copper much of the global economy will not work. And for leading copper producers, especially those in Latin America, namely Chile and Peru, any efforts to change global markets is a major concern.

In late February, the Trump administration fired another salvo in the tariff wars with the rest of the world, indicating that it was launching an investigation that could result in possible tariffs on raw mined copper, copper concentrates, copper alloy, scrap copper and derivative products made from the metal. The justification came under the flag of Section 232 of the Trade Expansion Act, which provides the U.S. president broad authority to impose trade restrictions on domestic security criteria.

Secretary of Commerce Howard Lutnick stated: “Like our steel and aluminum industries, our great American copper industry has been decimated by global actors attacking our domestic production. Tariffs will help build back our copper industry, if necessary, and strengthen our national defense.”

Further color to the U.S. decision was made by tariff hawk and close Trump adviser Peter Navarro, who stated that China had “long used industrial overcapacity and dumping as an economic weapon to dominate global markets, systematically undercutting competitors and driving rival industries out of business.”

The concern over Chinese dominance of global refined copper derives from it being the world’s largest refiner of copper and a long-term strategy to secure strategic supply chains. As one study noted: “Chile, Peru, and Mexico collectively lead as China’s largest raw copper suppliers, with exports totaling $28.8 billion in 2022.” Considering the centrality of copper to the global economy, Chinese dominance in copper refining gives it considerable leverage vis-à-vis other countries, including the U.S.

The challenge for the U.S., as seen through the geopolitical lenses of the Trump administration, is how to wean the U.S. off foreign sources of copper, both raw, refined and scrap. Currently, the U.S. produces domestically just over half of the refined copper it uses every year. However, raising production and refining is complicated by the stark fact that although the U.S. holds more than 275 million metric tons of copper reserves and resources, any new mining projects currently project average 29 years to commence production.

While the Trump administration’s tariff threats appear to be more leveled against China, the Latin American contribution to global markets could also be negatively affected, considering that one of their major markets for the metal is the U.S. According to the U.S. Geographical Survey, Chile is the U.S.’s lead source of refined copper (64 percent), followed by Canada (18 percent) and Mexico (11 percent). In terms of copper scrap, Canada is the leader (48 percent), followed by Mexico (40).

Copper is big business for Chile, which accounts for 24 percent of world copper production. In 2022, Chile’s copper sector produced 5.3 million tons of copper, while the mining sector’s contribution to GDP was 13.6 percent and mining exports were 58 percent of total exports. Between China, the U.S., and Japan, Chilean copper is in high demand.

Peru exported more than 2.5 million tons of copper in 2023, roughly equal to 12 percent of the world’s total copper production. The centrality of mining to the Peruvian economy cannot be understated as the sector (including gold and iron ore) accounts for 58 percent of exports.

The Chinese connection is significant for Chile. The Asian country imports close to one-third of Chile’s raw copper. China’s astute economic statecraft entails Chile’s identification as a “strategic partner” in 2012; upgraded to “comprehensive strategic partner” in 2016, and in 2018 the Andean country joined the Belt and Road Initiative (BRI).

Prospects of tariffs are daunting, but Chile’s response has been cautious. The country’s foreign ministry stated a technical team would be analyzing the situation pending further updates. Peru has largely taken the same line. It is likely that as the copper investigations progress, Chile and Peru will be more active in seeking to buffer any downside. At the same time, both Chile and Peru have free trade agreements with the U.S. and if copper tariffs are imposed the status of those agreements will have to be reconsidered.

The possibility of tariffs on copper and its byproducts comes at a bad time for Chile. The economy has been relatively weak over the past several years. According to the IMF, real GDP growth was 0.2 percent in 2023 and 2.2 percent in 2024, with the IMF forecasting 2.2 percent for 2025. As the IMF’s Article IV Report (February 2025) cautions: “The external environment is unstable and uncertain. The commodity price volatility linked to the economic outlook of Chile’s main trading partners and the pace of the global green transition represents a key external risk. Copper and lithium prices directly impact Chile’s fiscal revenues and can have spillover effects on non-mining sector activities.” Peru is in a better situation, despite a higher degree of social turmoil. However, both countries are vulnerable to upheaval in copper markets, especially the imposition of tariffs in one of their largest markets.

Considering that Chile and Peru have free trade agreements (FTA) with the U.S., will the Trump administration’s unilateral action make those agreements null and void? Canada and Mexico are already facing a 25 percent hit on tariffs, which clearly erodes the idea of those countries having an FTA with the U.S. through the USMCA.

While there is considerable uncertainty around the future direction of U.S. tariffs on copper, what is certain is that demand for the metal is likely to continue. The Trump administration must carefully weigh how much it wants to hurt China, prop up its own industry (and what that will take) and how to treat Chile and Peru. Will copper tariffs be weaponized to punish the two major Latin American copper producers for their economic closeness to China? If so, will Chile and Peru move even closer to China? It will be several months before any decision is made. Copper, like so many trade-related issues, is caught up in the Trump tariff swirl and where these countries end up is a big question mark as are the long-term consequences.

Scott B. MacDonald is Chief Economist at Smith’s Research & Gradings, Senior Fellow at Global Americans, and Founding Member of the Caribbean Policy Consortium.

This article was originally published by Global Americans.

Republished with permission from Global Americans.

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