By Mira Korber, guest blogger.
While wandering the streets of Buenos Aires, I wondered why the shop windows seemed devoid of any new Apple products. Electronics stores touted the antepenultimate model of the iPod Nano as the new (overpriced) great thing. I was the only person I saw with an iPhone.
Regarding the iPhone, my Argentine homestay family even told me, “It just isn’t that big here.” Here’s the basic reason why, as illuminated by this fascinating Wall Street Journal article:
Argentina is currently employing protectionist policies. The “impuestazo,” or “Big tax” set in place by President Cristina Kirchner doubles the value-added tax (VAT) on electronics imported from other countries. The government has also significantly lowered industry taxes in Tierra del Fuego, where the non-Apple electronics are produced, to incentivize more growth.
The goal is to keep jobs and capital within Argentina, even if it means the price of electronics (domestically and internationally made) will skyrocket for consumers. Jobs in the electronics industry numbered 3,500 before the Big Tax; now the December employment peak clocks in at 13,500.
High prices for even domestically produced electronics result from inefficient assembly, storage, and transportation methods used in Tierra del Fuego, Ushuaia (the southernmost tip of South America). Component parts travel as follows: Asia –> Buenos Aires –> Ushuaia for assembly –> Buenos Aires for sale.
It also turns out that iPhones are now not only uncommon in Argentina, but banned from commerce. To get one, citizens have to buy them on their travels outside the country.
The Economic Lesson
And read here about how Argentine protectionism is affecting American exports.
An Economic Question: How would a tariff affect the curves on a supply and demand graph? What would happen to prices?