Make Argentina Great Again

What America can learn from Argentina Trade Policy

 

I recently listened to a podcast from Planet Money titled “the Phone at the end of the World.”

It was 2011, and Argentina had just reelected Cristina Kirchner President. Her whole platform was bring manufacturing from Asia and Mexico to Argentina.  Does this sound familiar?  First was the direct pressure on companies to manufacture at home  and huge taxes on items made overseas (ie, 30% or 40%). Certain items, like electronics had to be made in Argentina, including cell phones.  If you wanted to import items, you had to export something as well.  So a Porsche importer started exporting wines, Subaru started exporting chicken feet, and Mitsubishi exported peanuts.

The Blackberry Story

Back in 2011,  the Blackberry was still very popular, especially in Argentina. So a phone that was imported from Mexico now had to find manufacturing in Argentina. This was not easy to do, especially when you lack engineers, skilled manufacturing staff, and state of the art machinery to make electronics.

Two years after Argentina’s cell phone ban, the first Blackberry rolled off the line. It was celebrated as a success, a job creation story.  Politician’s crowded around the first Blackberry like it was the Holy Grail and celebrated like Argentina will be a great manufacturing center.  The country started manufacturing microwaves, TVs, laptops, etc.  It seemed like a big success.

But, by the time the first Blackberry rolled off the line, it was 2 years old and twice as expensive as the same models in the USA. And we all know 2 years is a lifetime in electronics.  Less than 2 years after the first Blackberry was made, the factory closed.  This happened at factories all over Argentina. The economic controls imploded, and inflation hit 40%.

There are obvious direct parallels for bringing this up. I am not sure there are direct comparables given how small Argentina’s manufacturing sector was, but there are certainly things to consider:

  1. Finding skilled staff domestically may involve raising wages to find the right staff
  2. Inflation is always a risk with protectionism. There are just some places where it is more cost-effective to produce parts. Even the celebrated Dreamliner has parts imported by Boeing from South Korea, Italy, Canada, France, Japan, Sweden and Australia.Global production just makes sense, and sometimes local production agreements are backed by repurchase agreements.
  3. Investing in manufacturing without thinking where a country has competitive advantages is not smart.
  4. You may be able to manage supply, but you cannot control demand.

To this day, Apple iphones are not sold in Argentina.

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