The Protectionism Equation

Is there a bright line between fostering local business and trade protectionism? Where does one end and the other begin?

That’s a question behind the growing talk about near-sourcing — one of the hot topics these days in supply chains — and its impact on manufacturing and trade flows. When you get down to looking at how near-sourcing works at the product level, the questions get harder to answer.

The Economist pointed to an interesting example in its Sept. 24 edition in looking at what it called the “heavy-handed trade restrictions” of Argentina and Brazil. In Argentina’s case, those restrictions led to a shortage of Blackberrys in the country because the government stipulated local content in the finished products.

You can read more about the specifics here, but the bottom line is that moving Blackberry production from Asia to a factory in Tierra del Fuego raised the manufacturing costs about 15 times over the costs in Asia. Here are the basics from The Economist:

On October 3rd Brightstar, a multinational manufacturer, will begin importing kits of the phones’ parts to its factory in Tierra del Fuego, the normal base for cruise ships going to Antarctica. Some 300 workers will brave the frigid austral fog to assemble the pieces and put them in locally sourced packaging.

Making BlackBerrys south of the Magellan strait will cost $23m upfront, plus $4,500-5,000 a month per worker, some 15 times more than in Asia. But the government touts the project as a triumph of its trade policy. It will help cut foreigners’ share of Argentina’s mobile-phone market from 96 percent in 2009 to a forecast 20 percent by the end of 2011.

Raising one product’s costs that much may certainly amount to trade protectionism, and even heavy-handed protectionism. But the gap also tells you something about how very, very low manufacturing costs are in Asia. And it’s a big reminder about what a small piece the logistics and transportation is in that manufacturing equation, at least for a high-value product such as a Blackberry.

Paul Page is executive director of The Journal of Commerce. He can be contacted at 202-355-1170, or at Follow Paul Page on Twitter,

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