Protectionism? A Warning from Argentina to the US
When Argentines go abroad, they usually go shopping. Many of the products they want cannot be bought at home, ranging from clothes to smartphones and all kinds of home appliances. Because of this, it has become a tradition to return from a trip with one or two extra suitcases filled with smuggled goods. Did you know that it is more expensive to buy an outdated iPhone in Argentina than it is to fly from Buenos Aires to Miami, stay for three days, and get the newest one?
Paying higher prices and accessing lower-quality products are the natural consequences of adopting tariffs, one of US President Donald Trump’s favored economic policies. Argentina has already gone down this road. For over eight decades, governments from both the left and the right have repeatedly pursued “import substitution” policies to maintain trade surpluses. Unlike other Latin American countries, which eventually dropped a strategy that was common from the 1950s and 1960s, Argentina insisted on this model. The result is that the country is now one of the most closed economies in the world: It went from being one of the richest countries in the world to one with only a mediocre economy, having been surpassed by at least 60 countries in terms of GDP per capita.
Correlation does not imply causation, and it is easy to see the great damage that protectionism has caused. The country has protected specific industries from outside competition, but this has resulted in more expensive products for consumers and sometimes even the highest prices in the world, as in the case of clothing. Remember “What Is Seen and What Is Not Seen” by Frédéric Bastiat? This is an exact application of his argument: Argentine jobs were saved in the textile industry, but only at the cost of silently impoverishing the entire population by forcing them to pay extra for a pair of shoes.
Tariffs also hurt local industries that rely on imports. In Argentina, farmers struggle to update their tractors and harvesters, even though agriculture accounts for most of the country’s exports. As a result, Argentina has lagged behind its peers: In the past 25 years, the country’s exports have only grown by about half the rate of the rest of Latin America. Protectionism, then, sometimes fails to protect even those it was meant to help in the first place.
Tariffs do not just make it difficult to get phones at home—they can make life dangerous as well. Argentina’s most sold car, which is artificially expensive because of protectionist measures, got 0 (zero) stars on one of Latin America’s most renowned safety tests. Cars in Argentina are not only more expensive than elsewhere in the region, but also markedly less safe.
To achieve these terrible results, the only thing Argentina had to do was enact tariffs, and now the US seems to be heading in the same direction. But in the past, protectionism has caused the same damage in the north as it caused in the south. Back in the first Trump administration, protecting the steel-production industry saved some jobs, but eliminated many more. Tariffs have also hurt businesses that rely on imports within the US and can continue to do so in a world of globally integrated supply chains. More generally, the 1933 Buy American Act, which forces the government to pay more for US-made goods, has been proven to be both ineffective and costly.
There is no escaping the negative effects of blocking outside competition. The more barriers a country enacts, the more damage it causes to itself. If we, as individuals, acted in a protectionist way, we should aim to grow our own food, build our own house, or make our own cars. But how does that make any sense? Economist Robert Solow once said, “I have a chronic deficit with my barber, who doesn’t buy a darned thing from me.” He meant it as a joke, but he had a point: What matters is to create wealth, which can be done both by selling and buying from others.
The revival of protectionism in the US is worrisome. To avoid it, Americans should take a look at the enormous destruction of wealth that tariffs have caused in other countries. Despite President Milei’s recent efforts to lift tariffs and take Argentina out of the “prison” in which it exists, the fact that the country shot itself in the foot decades ago has put it in a very delicate economic position. The US should not follow its path.
This piece originally was published by the Foundation for Economic Education.