The Minister of Deregulation and State Transformation, Federico Sturzenegger, published an extensive thread on social media. In the text, he challenged one of the most common objections to trade liberalization: the idea that Argentina can't open its economy while a strong cost differential persists.
From the outset, the minister made the tone of his argument clear: “UNPOPULAR OPINION. TWEET NOT SUITABLE FOR IRRITABLE PEOPLE. Today I'm going to comment on one of the most common arguments that economists, journalists, and the business sector (the @UIAok, for example) use to question the opening of the economy.”
Sturzenegger targeted directly the reasoning that proposes waiting first for a substantial tax cut and only then moving forward with liberalization. “The idea of the uneven playing field suggests that taxes should be lowered first (...) arguing that only then, in a more level context, could a liberalization process be undertaken.”
According to the minister, this argument is not only conceptually wrong, but it also works as an elegant way to avoid competing: “It is a comfortable way out (nobody wants to adopt a protectionist stance that goes down badly with the public, where it seems that one doesn't want to compete), it sounds plausible, and it is a good way to kick changes down the road.”
David Ricardo, productivity, and trade
To explain why the “uneven playing field” doesn't invalidate liberalization, Sturzenegger turned to classical economic theory. “But why would this reasoning be wrong if it looks so reasonable? Well, because of what David Ricardo was already saying at the beginning of the 19th century.”
In his explanation, he emphasized that productivity differences between countries are the rule, not the exception: “Societies differ in productivity for many reasons. Some because they are failed states, others because they have security problems, others because they use outdated technology, others because they have capital of higher or lower quality, others because they have better infrastructure, etc.”
He then recalled the core of the Ricardian argument: “What David Ricardo demonstrated is that even among economies with huge productivity differentials it was advisable to trade, because trade allowed each one to focus on what it was relatively better at.”
