Shortsighted stopgap

In the last decade or so, Chinese-run supermarkets have sprung up throughout the Argentine coastal city of Mar del Plata. Unsurprisingly, most of the owners are from the southeastern province of Fujian, whose sons and daughters are renowned for their nomadic tendencies and willingness to seek fortune overseas.

The exact provenance of these people is lost on the majority of Argentines who frequent these shops, often simultaneously complaining about the disappearance of the traditional neighborhood grocer. These grocers never had a chance. They could never compete with the Chinese family operations that are both efficient and plugged into the world’s cheapest supply chains.
Many locals wonder how these foreign entrepreneurs – who often don’t speak Spanish – can afford to outbid all the competition. For a while, rumors flew around that Beijing was reimbursing the shop owners’ taxes.

The validity of these claims is less important than the fear it reveals: that China is deliberately putting Argentines out of work.

American angle

This view is similar to that of many in the US, but one that, due to the much lower visibility and relative significance of the economy of Argentina, gets much less play in the English-language press.

Of course, the trade relationship between China and the US may well be the most important in the world. American purchasing power has provided much of the financial fuel for the expansion of China’s manufacturing capacity. In turn, China’s ability to pump out low-cost manufactured goods at unprecedented rates, together with its willingness to use the profits to buy up US debt, has sustained this purchasing power. On balance, the American consumer has benefited from China.

The impact has not been as positive on countries that cannot boast America’s economic depth. China’s production capacity has flooded the world with cheap goods but at the same time stifled the development of local manufacturing.

So it is not altogether irrational that Argentina wants to give its industry a helping hand.

These efforts came to fruition in September as the government in Buenos Aires imposed import restrictions on a wide range of consumer goods. Chinese-made goods were a particular target.

This elicited the predictable responses. The Argentinean government expressed its hope that Beijing would understand the move was not made in bad faith, but to protect jobs. Beijing, which is Argentina’s third-largest trade partner largely due to its demand for soybeans, said Buenos Aires was going against the rules of trade.

Arguments for or against protectionism notwithstanding, cheap Chinese goods are ruining nascent Argentinean industries such as tires, footwear, bicycles, auto parts, leather goods, toys, textiles, electronics and tools. Import tariffs have been imposed on them all but the problem is that the tariffs are a temporary stopgap at best.

The Argentine economy has made a remarkable turnaround from the dark days of 2001, when the country pulled off the largest sovereign debt default in history. Last year, the economy grew 8.5% and it is on track to jump another 7% this year, a rate of growth that would put the country’s GDP at US$268 billion in 2007 and over US$350 billion by 2012.

The real barrier

But to grow to the level most Argentines expect – and this is a country whose people see themselves as among the most sophisticated in the world – the economy has to become internationally competitive. This is the key challenge.

Despite its reputation, Argentina is incredibly insular. Following in the footsteps of iconic former president Juan Peron, politicians have long favored shortsighted solutions that pacify big blocks of voters in the lower income brackets rather than taking hard steps that benefit the economy.

One recent example is the government’s method of dealing with power shortages. Rather than investing in expanding capacity, it is instead forcing industry to shut down. As a result, people have little choice but to buy Chinese-made goods in Chinese-owned supermarkets.

Tariffs may protect industry, but they do not develop it. Argentina, like other countries that choose the same route, should learn its lesson and cultivate domestic entrepreneurship rather than just shutting foreign enterprise out.