That warning follows a 45-5 warm-up victory for Scotland A against the Chileans on Saturday in Santiago.
Ex-Melrose players Damien Hoyland and Rufus McLean both touched down for the Scots at the weekend, the former, returning to international rugby after a five-year absence, three times.
The visitors’ other try-scorers were George Horne at the double and Ali Price.
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Hoyland, 28, and McLean, 22, were joined in Saturday’s starting line-up by another ex-Melrose man, Jamie Bhatti, and Jedburgh’s Glen Young made his first post-age grade appearance for his country, coming on as a 51st-minute replacement for Scott Cummings.
“It was a tough workout,” said ex-Gala and Border Reivers star Townsend, 49, afterwards.
“We had to fight in the second half to keep Chile out, and they eventually did score a try.
“There are parts of our game we know we have to work on more next week, but there were positives, like the way we played in the first half, with some young players integrated into the team, and we took our opportunities and that was great to see – also a strong finish, and that was pleasing.
“Whether it was defending mauls, defending phase play, defending turnover, I thought our hustle and work-back when we lost ball and Chile made breaks were excellent.
“It is no bad thing to concede points as well. It reminds everybody we have work to do next week, and we know it will be a big step up in terms of opposition and the quality of players we will be up against.”
Argentina are only one place beneath Scotland in the world rankings so Townsend is all too aware of the calibre of opposition his side will face as they prepares for this Saturday’s first test in San Salvador de Jujuy.
“Chile are an improving team but not in the top 20 in the world while Argentina are eighth in the world and have a squad of professional players in the top clubs in Europe,” he said.
“Chile were cohesive and had some good rugby players to go alongside the physicality, but we know Argentina will be a much bigger step up.”
Scotland will be reinforced by the arrival of English-based players including Hawick’s Rory Sutherland for the series in Argentina and the likes of tour captain Grant Gilchrist, Rory Darge and Darcy Graham are also likely to feature in Townsend’s plans.
Saturday’s matchday squad will be announced on Thursday.