Every governments likes to see rising exports and declining imports. Not only are these indicative of higher local production and competitiveness, it also improves the balance of payments and increases foreign reserves, allowing the payment of foreign debts and stabilizing local currency.
What prevents states from achieving this goal through administrative interference—rather than through market mechanisms — is the realization that while such intervention might bring short-term improvements in the balance of payments and temporarily shore up the local currency, it ultimately damages the national economy, the competitiveness of local production, and in turn, the capacity for export and future growth.
More specifically, import controls impede inflows of raw materials, equipment, spare parts, and other production inputs necessary for domestic production.
Stopping, or even interrupting, these flows must be avoided as it weakens the ability of the national economy to produce and threatens employment, exports, and tax revenues.
Restricting imports by administrative fiat without distinction between various goods and services may have an inflationary effect, serving to increase the price of imported consumer goods – as well as local goods that rely on imported factors.
Moreover, interfering with free international trade flows threatens local merchants and manufacturers relationships with multinational firms, destabilizing commercial ties and undermining the trust built over years of regular commercial dealings.
This is a value that should not be easily dismissed.
Finally, the perception that a state is prohibiting or obstructing normal international commercial transactions harms its international image, fueling apprehension and deterring foreign investors looking for stability in countries that respect international free trade.
But are there benefits to import controls? Might they not spur import substitution, thereby boosting local investment and production?
While encouraging local production is a paramount economic goal, there are two major considerations here:
First, encouraging local production does not necessarily dictate import substitution. It’s better for a country to produce where it has a competitive advantage, this increasing exports and bringing in foreign currency. In exceptional cases, a government may decide—for strategic reasons or to ensure food security, for example—to produce certain goods locally so that it is not held captive to fluctuations in the global economy or political alliances.
But exceptions like this are precisely that—exceptions, and these are not a good basis for formulating general rules.
Second, restricting imports with the goal of encouraging local production must be coupled with prior measures to foster a climate that allows domestic and foreign producers to take advantage of the opportunity created. A favorable investment climate entails stable laws, state receptivity to the private sector, easy access to transparent information, the facilitation of issuing licenses and land permits, a straightforward tax regime that does not allow for additional, unanticipated fees, and a judicial system that can resolve legal disputes in a timely and transparent manner.
Without these elements, import controls will not attract the investments needed to spur growth in domestic production.
I’ll end where I started: every government likes to see exports grow and imports decline. But this goal cannot be achieved by ignoring economic fundamentals or stubbornly resisting market forces. Only investment reforms can bring a genuine, competitive boost to domestic production.
