Of Blackberrys, Pineapples And Trade

Free trade helped power a dramatic rise in living standards in the West in the nineteenth and twentieth centuries. In the last three decades it has had a similar impact on the welfare of billions of people in emerging economies.

Yet in the face of a backlash against globalisation, free trade is arguably more at risk than at any time since the 1930s. Those who want to limit trade see it as a way of "bringing home" high-quality jobs and reinvigorating industry.

Argentina's recent experience with trade barriers tells a different story.

Argentina has pursued relatively restrictive trade policies since the Second World War. Starting in 2007 Argentina's former president, Cristina Kirchner, adopted new protectionist measures as part of a 'Made in Argentina' drive.

Some categories of imports were limited or subjected to long delays. Companies were required to seek permission before importing goods or services. Other rules required importers to match the value of imports by exporting an equal value of goods. It resulted in a Porsche dealer exporting wine to offset imports of cars. Other car importers found themselves in the business of exporting soya, peanuts and biodiesel.

Faced with these restrictions, Apple withdrew from the Argentinian market. To retain its access to the Argentinian handset market, where it was a major player, Blackberry was obliged to shift production from Mexico to Argentina.

In 2007 Blackberry set out to create a manufacturing operation in Tierra Del Fuego, a remote, sparsely populated part of southern Argentina whose main industries are agriculture, fishing, tourism and gas and oil extraction. The choice of location was the government's.

To attract workers to the region Blackberry had to pay a salary premium. The Economist estimates wages were some 15 times higher than in Asia and costs were far higher than at its Mexico plant. The Tierra Del Fuego factory cost $23 million to build, much of it paid for by the government.

When production finally started the first Blackberry model was two years out of date and cost significantly more than the Mexican-made version.

Unsurprisingly, Argentinian consumers were unwilling to pay an above-market price for an older model. Almost immediately travellers started to smuggle cheaper, more modern Blackberrys into the country.

Sales of Argentinian-made devices plummeted and, after two years, the Tierra del Fuego plant closed.

The episode illustrates a...