Tuesday, March 21, 2017

A History Lesson on Protectionism

The Border Adjustment Tax purports to be "simply" tax policy and certainly not "trade policy". However, it is readily apparent that the BAT is trade policy, and is protectionist in nature.  What me worry? 

NPR's Planet Money published a short cautionary tale about protectionism which is worth a moment to read.  In this report, they noted that Argentina went through a populist revolution about ten years ago and elected a charismatic president who wanted manufacturing to return home. No, they didn't elect Trump, they elected Cristina Kirchner. You know, the one who was later indicted for corruption.  

NPR starts by setting the scene:

"Ten years ago, Argentina was in a situation that may sound a bit familiar. The country had just elected a populist president, Cristina Kirchner, with big plans for their economy. Kirchner wanted to control imports and exports and bring manufacturing to Argentina, so she placed huge tariffs on items made overseas. For some products, she said, if you want to sell this in Argentina, you'll have to make it in Argentina. One of those items was the cell phone."

Sound familiar?

They go on:  "Cristina Kirchner's made-in-Argentina rule drove some companies away. Apple stopped selling iPhones in Argentina, but other companies played ball, including the company that made Blackberry phones."

The story doesn't end well.

Did you need me to tell you that?

Read the report and think about a U.S. economy with a border adjustment corporate tax.  

And get the antacid ready.

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