>Import substitution is a policy by which the state aims to increase the consumption of goods that are made domestically by levying high tariffs on foreign goods. This gives an advantage to the domestic manufacturers as their goods will be cheaper and preferable in the market compared to foreign products. India adopted this model post-independence, and it continued till the 1991 reforms. Due to import substitution, the domestic producers captured the entire Indian market, but there was slow progress in technological advancements, and the quality of Indian products was inferior to the foreign manufactured ones. But after the reforms, the Indian market was opened to everyone, and the consumer got the best value for the price he paid. The Make in India policy of the present government is reminiscent of the pre-1991 inward-looking Indian state.
In the US it will be even worse. The US is already high-tech economy outsourcing low value-adding manufacturing to foreign countries while industries move towards higher value-adding products. After the tariffs, US manufacturing sector will sift to lower value-added, lower complexity products.
Yeah. Specially because the U.S economy is service-focused (and consumption as well).
Like, imagine now that all your computers will be more expensive/worse. This will affect services from like, a law firm - to a tech company. Will make harder for young buy good computers and start to code, etc.
I say this as a Brazilian, to us Brazilians watching, this is like: Why are the U.S repeating the same mistake?
I don't think Americans know this, but here in Brazil, we also have phone, tablet and PC national brands (Positivo¹, Multi², Philco³). National TV brands like Semp, AOC, Mondial. A ton of home appliances brands like Mondial, Philco, Britânia.
But why Americans don't know them? Because they only exists because of the tariffs. So they only exists in Brazil internal market. They are worse than foreign brands, but they exists because it's cheaper to buy a Mondial Kitchen Stand mixer than a Kitchen Aid!
And worse that most of these products are only white-label Chinese products, sold way more expensive than the real chinese ones.
This also create a whole gray market. A lot of people start smuggling products without import tax.
And this only with a 7% average tariff. Not the U.S 29% lol. Brazil with 31%~ prior to the 90's was WAY worse than this. A lot of brands just died when we opened a little the market (Consul, Brastemp, were Brazilian big fridge, Washing machine etc makers, they got bought by Whirlpool in the 90's)
American Brands then will now look for the U.S gov to ask for exceptions too, and this create a lot of corruption. And after you put these tariffs and there's a whole new companies made to internal market, it's almost impossible to remove because of the lobby from these companies (and corruption).
In Brazil, the Philco operation was bought by Gradiente (The company that sued Apple over the use of the iPhone trademark) in 2005. Before that, Philco was from Itau (a Brazilian bank).
Stop. Hold on. You just heard a solid set of examples and logic on why the tariffs were bad for Brazil's consumers and your takeaway was that one brand that couldn't compete in the US moved to the sheltered manufacturing environment and that is good?
The policy is good for uncompetitive manufacturing - and so you are in support of it? Why is that less-competitive manufacturer from Philly who couldn't compete anywhere but Brazil more important than the people of that country?
Not at all - I'm not really taking a solid stance one way or another because I'm not an economist.
My only point was that Philco was being used as an unknown crappy Brazilian brand example. It used to be an American company that actually made quality things, and through outsourcing and general 'physical and financial enshittification' is pretty much an unknown to Americans now.
If you're in favor of quality things being made in the US, it's an argument for said policy.
But the examples _just_ given show that the same kind of tariff policy in Brazil caused shitty local options that could never compete with the outside world and cited example after example. The whole "grey" market for un-tariffef foreign goods.
There is nothing that says tariffs cause quality things to be built locally and the examples are counter to that.
Yes I understood the post but the difference is that Brazil didn't have a burgeoning or top tier electronics industry at any point I can remember. The US did and slowly gave it away to cheaper producers. Further, the average American has more disposable income and won't necessarily just grab what's cheapest.
So it's not easy to conclude they are the same in any fashion.
The question is what would happen today if the US ends up in the same situation. Will we go back to producing top tier electronics, or get stuck with crappy brands taking advantage of the situation? It's hard to say. I'd guess a mix of both. Top tier stuff would probably in house what they can, but the low end would get much, much worse. But that's just me guessing.
So if we want electronics manufacturing, economists agree, targeted tariffs can encourage local electronics manufacturing.
The US does targeted tariffs all the time, including 100% on Chinese electric vehicles because otherwise they could undercut the entire US auto industry.
Blanket tariffs have been tried. We can point to examples. They are bad. Economists agree here too. The US and allies have worked long and hard at reducing barriers to trade and we have avocado toast in January to thank for it. The alternative is to suggest the US can and will be the best at everything (or at least at enough things to offset the obvious loss in purchasing power of people).
A bit of an aside: there is this bizarre "anti-global" thing gaining more traction. Global trade ties economies together disincentivizing war. Isolationism promotes war because you need to own more to grow the economic pie. It drives towards taking over other territories, like, say, Greenland or Canada. Trade expands the economic pie.
Yeah, but the U.S. govt funds a lot of important research so it may not fall behind technologically unlike India…
Wait, what did you just say? The U.S. government has decimated its research funding?
Oh, well, at least the U.S. has a lot of high quality colleges churning out highly educated Americans, so that still may not be as much of a problem…wait, did you say Americans are increasingly turning away from college due to the high costs and the resultant loans that cannot be terminated even in bankruptcy, because the government has been cutting back significantly on funding education for years now?
Oh well, at least the U.S. is welcoming to immigrants who have founded over 50% of unicorns and usually tend to be the most dynamic and brightest slice of their country’s populations, so it may maintain its technological edge…
> The Make in India policy of the present government is reminiscent of the pre-1991 inward-looking Indian state.
Have you seen the 70s or the 80s? I was a child during the 1980s when India was a socialist state. There were very few private enterprises, because there was absolutely zero government support. Taxation peaked at 90% during the early 1970s under Indira Gandhi, who also nationalized many of the largest private companies - because private enterprise was seen as a bad thing. It was also impossible to bring in foreign investment, because that would come with profit motives.
Basically, the comparison you're drawing is not really accurate. The current Make in India plan is very similar to the US bringing in strategic manufacturing back into the US; a plan which has had bipartisan support (for example, the CHIPS Act). It incentivizes businesses (including foreign companies) to set up manufacturing units in India. And is quite the opposite of what was happening during India's socialist era.
>It incentivizes businesses (including foreign companies) to set up manufacturing units in India.
That type of protective policy works for India in incentivizing manufacturers to come build locally because Indian labor is still dirt cheap and the government will work with you to give you what you need without the pesky nimbyism, environmentalism, etc getting in the way of factories. US is not in the same case.
> Even though Make in India is not a classic import substitution case, it aimed to reach that end.
So it's not really import substitution. But let's ignore that article, it's not a serious piece anyway.
A key idea of Make in India is to make and export - which means that unlike socialist-era import substitution (via tariffs and permissions), the ones which aren't good enough will fail fast and cheap. It won't lead to people driving HM Ambassador cars for 40 years.
Whether Make in India will succeed or fail is a very different matter, of course.
I think to nurture developing industries, it can be fine, but at some point you have to expose them to competition if you want to exceed what the domestic market can do.
Domestic industries DO compete - both with each other AND with foreign companies which are levied with tariffs.
One of the reason why China's import substitution was almost unreasonably effective was because domestic companies were driven to compete fiercely with each other.
(In America there is a drive to do the opposition- wall street likes consolidation and oligopolies)
And yeah, once your national industrial ecosystem is sufficiently powerful most countries suddenly get religion about removing all tarriffs everywhere. This is what America was like in the 90s - and they were just as obnoxious about that as they are about this - the exact opposite.
The US outsourced to China because of cheap labor, not because Chinese products are good--precisely because US companies were competing with each other and needed ways to reduce prices and improve margins.
That this ultimately had the effect of diminishing the manufacturing base in the US doesn't speak to the ability of US or Chinese companies to compete.
China is a centrally planned economy. To argue it's more competitive than the US is again not tenable.
>The US outsourced to China because of cheap labor
Yeah, in 2003. The US offshores to Bangladesh or vietnam for cheap labor now and has for a long time.
Manufacturing is offshored to China simply because it cant be done in the US at anything resembling a reasonable cost, not because labor is cheaper. That is because the Chinese industrial ecosystem is unparalleled.
>China is a centrally planned economy. To argue it's more competitive than the US is again not tenable.
The economic dogma of the late 90s is getting a little long in the tooth now. Not least because it was completely blindsided by the rise of China.
It turned out that the most effectively run economies were a hybrid of distributed and centrally planned (China has open internal markets while credit allocation is largely centrally planned).
Quite a coincidence, I was reading this LRB essay [1] this morning by British political philosopher and historian Perry Anderson, analysing the last decade of political and economic (lack of) change in the West. He ended with this paragraph, I had to look up "import substitution" and then in this thread about the tariffs I see it mentioned again, there might be similarities with Trump and Getúlio Vargas. Any people more knowledgable in Brazilian economics want to chime in?
>Does that mean that until a coherent set of economic and political ideas, comparable to Keynesian or Hayekian paradigms of old, has taken shape as an alternative way of running contemporary societies, no serious change in the existing mode of production can be expected? Not necessarily. Outside the core zones of capitalism, at least two alterations of great moment occurred without any systematic doctrine imagining or proposing them in advance. One was the transformation of Brazil with the revolution that brought Getúlio Vargas to power in 1930, when the coffee exports on which its economy relied collapsed in the Slump and recovery was pragmatically stumbled on by import substitution, without the benefit of any advocacy in advance.
Honestly wouldn't compare Vargas with Trump here. Trump policies for me seems similar to what the military regime did (1964-1985)
Before Vargas rule (around the 30-40's), Brazil was an agrarian state, basically commanded by coffee barons and so on.
Brazil got the independence in 1822, and abolished the slavery in 1888. During this time, it was reigned by Dom Pedro I and Dom Pedro II. When the empire ended the slavery (one of the latest countries to end), the military and the agrarian folks, did a republic coup. In Brazil we call this republic "Coffee with Milk republic", because it was not a democracy yet (only 4% could vote), and the power was divided by São Paulo (Coffee state) and Minas Gerais (Milk state).
It's a long and complex story, but in short, in 1930, Vargas did what we call "1930 Revolution". It was a dictatorship, he persecuted the Brazilian integralists (fascists) and communists (and banned foreign languages aimed at banning italian/german/japanese speakers etc). The dictatorship ended, he got removed, and later he comes by election, in the first Brazilian proper democracy, with huge people support.
Anyway, besides all that, he basically industrialized the country. Moved the country from an agrarian state to modern industrialized state. But not only because of import substitution, he created like Ministry of Health, Education, all the modern BR state that we know. Penal code, and everything is still from 1940.The industrialization was mainly led by state-owned companies. He created a state owned oil company (Petrobras), created a state owned car company (FNM), steel company (CSN), mining company (Vale), etc.
The development during this time, was basically making the state to be the one that would industrialize the country.
The military dictatorship goal was different, after all, it was a coup against "the communists", with the U.S support at the time. So the industrialization was also led by the private sector, protected by the state with the huge tariffs, and some areas they just banned imports.
Instead of the FNM car company for example, we had then Gurgel, a private company making cars.
Of course, a lot of these companies died when Brazil opened the economy in the 1990s, exactly bcause they were not competitive and wasn't exporting anything anyway.
But one thing that people need to keep in mind always, it's how all of that makes the product expensive. A car in Brazil it's way more expensive than in the U.S and so on.
Import Substitution: A Tried and Tested Policy for Failure https://www.kspp.edu.in/blog/import-substitution-a-tried-and...
>Import substitution is a policy by which the state aims to increase the consumption of goods that are made domestically by levying high tariffs on foreign goods. This gives an advantage to the domestic manufacturers as their goods will be cheaper and preferable in the market compared to foreign products. India adopted this model post-independence, and it continued till the 1991 reforms. Due to import substitution, the domestic producers captured the entire Indian market, but there was slow progress in technological advancements, and the quality of Indian products was inferior to the foreign manufactured ones. But after the reforms, the Indian market was opened to everyone, and the consumer got the best value for the price he paid. The Make in India policy of the present government is reminiscent of the pre-1991 inward-looking Indian state.
In the US it will be even worse. The US is already high-tech economy outsourcing low value-adding manufacturing to foreign countries while industries move towards higher value-adding products. After the tariffs, US manufacturing sector will sift to lower value-added, lower complexity products.