Monday, May 14, 2012

Argentina’s Trade War

No one would seriously expect Argentina to win a trade war with the rest of the world. Yet that is where things seem to be headed, with Argentina registering a complaint against Spain even as the EU is preparing legal action against Argentina. At the same time, Brazil is reinstating a licensing requirement for importers of potatoes, flour, and similar items from Argentina, a requirement that has been waived for many years. The tougher rules in Brazil are described as a retaliation for new trade restrictions imposed by Argentina in recent months. Argentina now requires a government permit for virtually every import transaction, and the permits are said to be available only to people who are well-connected.

Of all the countries on the Atlantic Ocean, Argentina might well be the least prepared to go it alone economically, and that is why its new trade war makes so little sense. It is a sign, perhaps, of a government with a fantasy view of the world. That style of wishful thinking usually takes hold only when a country’s economic expectations have run ahead of its resources and capabilities. Historically, Argentina has not done well when it has sought to isolate itself from the world, and there is nothing to suggest that the current episode will end well either.