May 25, 2013
Industry versus trade?
The best way to evaluate President Cristina Fernández de Kirchner’s Industry Day speech late on Monday is not to go deconstructing her words — neither debating the validity of her welter of data on Argentine industrial performance or rankings or investment nor her insistence on a continually competitive exchange rate nor even her astonishing dismissal of import restrictions as an “urban legend” — but to measure them against the reality of current policy. And that reality is that in recent weeks Argentina has escalated economic warfare against the rest of the globe — the United States, Japan, Mexico, etc. and the World Trade Organization (WTO) as a whole — with a protectionism which hurts the manufacturing industry it is designed to favour. This protectionism is hostile to export-led growth (to the extreme of levying export duties) in the name of import substitution policies which CFK also likes to call “re-industrialization” but constantly falls between two stools — Argentina’s home market of 40 million is basically too small to allow industry interesting economies of scale yet pro-consumer policies continually fuel local demand beyond the capacity of domestic supply. Argentine manufacturers have all the disadvantages of an exchange rate making them less competitive abroad without enjoying the freedom to import which that exchange rate would normally allow.
Protectionism denies industry both the benefit of the latest technology (as the prices here of the trendiest consumer electronics will readily confirm) and participation in the global chains of value increasingly crucial to a competitive and prosperous economy today — chains which operate in regional units on the basis of high volumes of exports and imports alike in what has been called the “third industrial revolution.” Investment, productivity and ultimately jobs all stand to lose as Argentina slips behind while protectionism triggers reprisals, thus jeopardizing markets where Argentina is competitive (notably agriculture).
Yet it is often not so much the fact as the style of Argentine protectionism which grates — its improvisation, lack of subtlety and irritating complexity. For example, if the government does not like people spending overseas, why not simply slap a massive airport tax on outgoing flights instead of this maddening maze of currency and import controls (with AFIP tax bureau producing a new curb on purchases abroad every day) which is destroying trade? Instead we can only expect the restrictions to multiply after their fierce defence in the presidential Industry Day speech.