Free trade helped power a dramatic rise in living standards in
the West in the nineteenth and twentieth centuries. In the last
three decades it has had a similar impact on the welfare of
billions of people in emerging economies.
Yet in the face of a backlash against globalisation, free trade
is arguably more at risk than at any time since the 1930s. Those
who want to limit trade see it as a way of "bringing
home" high-quality jobs and reinvigorating industry.
Argentina's recent experience with trade barriers tells a
Argentina has pursued relatively restrictive trade policies
since the Second World War. Starting in 2007 Argentina's former
president, Cristina Kirchner, adopted new protectionist measures as
part of a 'Made in Argentina' drive.
Some categories of imports were limited or subjected to long
delays. Companies were required to seek permission before importing
goods or services. Other rules required importers to match the
value of imports by exporting an equal value of goods. It resulted
in a Porsche dealer exporting wine to offset imports of cars. Other
car importers found themselves in the business of exporting soya,
peanuts and biodiesel.
Faced with these restrictions, Apple withdrew from the
Argentinian market. To retain its access to the Argentinian handset
market, where it was a major player, Blackberry was obliged to
shift production from Mexico to Argentina.
In 2007 Blackberry set out to create a manufacturing operation
in Tierra Del Fuego, a remote, sparsely populated part of southern
Argentina whose main industries are agriculture, fishing, tourism
and gas and oil extraction. The choice of location was the
To attract workers to the region Blackberry had to pay a salary
premium. The Economist estimates wages were some 15 times higher
than in Asia and costs were far higher than at its Mexico plant.
The Tierra Del Fuego factory cost $23 million to build, much of it
paid for by the government.
When production finally started the first Blackberry model was
two years out of date and cost significantly more than the
Unsurprisingly, Argentinian consumers were unwilling to pay an
above-market price for an older model. Almost immediately
travellers started to smuggle cheaper, more modern Blackberrys into
Sales of Argentinian-made devices plummeted and, after two
years, the Tierra del Fuego plant closed.
The episode illustrates a wider truth. Free trade gives
consumers the best products at the lowest prices. For this reason
protectionism tends to be self-harming. Import controls increase
costs for consumers and create an untaxed, unregulated black
market. In Argentina's case state aid for the Blackberry plant
diverted resources from sectors, such as agriculture and
commodities, where Argentina is internationally competitive.
'Bringing back' good jobs and making things 'at
home' are good slogans and have a simple appeal. But they make
little economic sense.
Consider an extreme example. It would be possible for the UK to
meet its demand for pineapples by growing them at home. Indeed,
eighteenth and nineteenth centuries a fashion for pineapples led to
their being grown, under glass and using a variety of sophisticated
techniques, in a number of estates. The costs were sky high. In an
experiment five years ago, the Lost Gardens of Heligan, in
Cornwall, produced a crop of pineapples using traditional Victorian
techniques. The cost per pineapple was about Ł1,200.
Cheap, refrigerated transport killed home-produced pineapples.
The UK could produce them today, but they would be hugely expensive
and, unless imports were restricted, unviable – just like
Argentina's home-produced Blackberrys. The pineapple would go
from being an everyday food to the preserve of the rich.
Many other products that industrialised nations import today,
from electronics, to textiles to toys, could also be made "at
home". Were that to happen, prices would soar and resources
that could have been used to develop the industries of the future
would be used to prop up low-cost, low-tech industries and
People are better off if the market, not government, decides
where Blackberrys and pineapples are produced.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The CAT in the UK heard on 17 January 2017 an application by Flynn Pharma Ltd and Flynn Pharma (Holdings) Ltd to suspend the Competition and Markets Authority's direction to reduce the price of an epilepsy drug.
A recent case found that a private equity firm was liable for its portfolio company's antitrust violations. This client alert explains that private equity firms, when selecting potential investments...
Online travel agencies which greatly helped maintain occupancy rates during the difficult years in the 1990s have been accused of exploiting their position of strength in a manner that contravenes the rules of fair competition.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).