Is Trump turning America into 1960s Brazil?
His determination to resort to import substitution and "make it in America" will only repeat the well-known economic mistakes of Latin America.
IN CHOOSING a cure to the United States' economic problems, president-elect Donald Trump seems determined to apply a well-known Latin American medicine, the strategy of import substitution. He is adamant about pursing an economic policy that gives strong preference to domestic production over buying goods from abroad.
Alluringly simple as this sounds, the validity of the concept has been disproven many a time. As emerging market countries, notably Brazil in the 1960s, found out, relying on such an approach usually only drives up costs for consumers and industrial end users, while doing little, if anything to improve a nation's productivity.
Moreover, most of Mr Trump's analyses (and hence prescriptions) appear to be based on competitiveness problems related to low wage costs and "currency manipulation" by China. Those factors, however, are no longer the main factors explaining the competitive gap of China.
BT is now on Telegram!
For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes