1 week Ago
Nobel Prize winning economist Simon Kuznets once stated that there are “four sorts of countries: developed, underdeveloped, Japan, and Argentina.For almost a century, Argentina’s oddball economic policies made it an example of what not to do.Soon, however, there will be two Argentinas: the real Argentina and a new country that under President Trump has actually followed Argentina’s 20th century lead, the United States of America.
When my great grandfather left Europe for Argentina in the early 20th century, Argentina was one of the five wealthiest countries in the world. Millions of European immigrants seeking a better life saw Argentina as offering the same or better opportunities as they could have had in the United States.Today however Argentina has fallen dramatically, ranking by one measure at 104th in the world in median wealth per adult, trailing countries including Kenya, Namibia and Vietnam.
What happened?During the middle of the 20th century, Argentina’s leaders decided they were being taken advantage of by world markets and decided to pursue an unusual strategy.They decided to make themselves economically self sufficient by walling themselves off from the rest of the world.They imposed extremely high tariffs and pursued a policy of import substitution, where they tried to make themselves richer by producing all the goods internally that they would otherwise have imported.
Argentina is a relatively large country with a well educated population. But it could never hope to out-compete the rest of the world.Because the tariffs were not narrowly targeted to Argentina’s strengths, they were poor industrial policy and simply made Argentina’s industries increasingly uncompetitive.
Long after the rest of the world stopped using out-of-date Blackberry phones, for example, Argentina was still producing them in a factory in Tierra del Fuego, a remote island near Antarctica, because Argentina imposed massive tariffs on iPhones made abroad that effectively kept them out of the country.Why would they stick to this policy?First, once you adopt a policy of extreme protectionism, it can be extremely difficult and painful to unwind the policy.But also, governments on both the right and the left discovered that there was one curious advantage to this policy – when you impose high tariffs you also create incredible opportunities for personal enrichment.
For every rule, there can be an exception. So while the people of Argentina suffered, Argentina’s leaders could dole out lucrative concessions, sell exemptions from tariffs or look the other way at smuggling.Donald Trump’s massive tariffs, the largest in a century, are absurd as economic policy.
They have already sent markets into a tailspin, ruining 401(k)s and life savings and jeopardizing countless pension plans, and they seem designed to plunge the country into a recession. But if the goal is doling out favors and seeking political power over the entire economy, they may work better than he could have imagined. Already the President has doled out dozens of exemptions from the tariffs to favored interests, rewarding his friends and punishing his enemies, and those exemptions are certain to rise.
As China and the US spar, countries brainstorm over how to cope with the trade warWhile there may be short term advantage for Mr. Trump, the danger is that our country turns into another Argentina – with basket case economic policies if not tango.The United States could have a targeted industrial policy that protects our national security and supports key domestic manufacturers against unfair foreign trade practices; enormous, blanket tariffs against almost every country on earth will simply impoverish the American people, ruining our retiring accounts, cut our manufacturers off from their supply chains and leave them underinvested in and uncompetitive, and raise the price of groceries and nearly every product on the shelves – with rampant black markets.
US expected a big travel year, but overseas visitors — angered by Trump — are heading elsewhereHopefully Mr. Trump learns from Argentina’s example and backs down.Connecticut state Sen.
Matthew Lesser represents the ninth district, serving Cromwell, Middletown, Newington, Rocky Hill and Wethersfield. He is a deputy majority leader of the Senate, chair of the Human Services Committee and vice chair of the Veterans Affairs Committee, and a member of the Appropriations, Judiciary, Labor and Insurance committees..
