Javier Milei wants to unleash market forces to reshape Argentina’s economy. Photo / Filippo Monteforte, AFP
Javier Milei has begun wrenching open Argentina’s protectionist economy, slashing tariffs in a bid to beat down high prices on everything from air fryers to electronics.
Argentines are ordering from Amazon for the first time and supermarkets are beginning to stock their shelves with Tide laundry detergent and Ecuadorean tinned tuna, as the libertarian President dismantles a web of duties and regulations that have made many imported products near unaffordable.
A Black & Decker air fryer that sells for US$100 ($177) in the US retails for US$289 in Argentina, according to listings on online retailers. A Zara slip dress that costs US$25 in the US sells for US$67 in the country, while an Apple iPhone 15 on sale for US$799 in the US costs US$2800.
The average Argentine salary is less than a quarter of the US.
Argentines complain domestically produced electronics, clothes and other goods, whose manufacturers are shielded from competition and face a big tax burden, are also overpriced.
“Everything is expensive … and the difference in quality is really noticeable,” said Matías, a municipal Government worker in Buenos Aires. “I’m a friend of Argentine industry, but not at any cost.”
Aiming to lower consumer prices and speed the decline of Argentina’s triple-digit annual inflation, Milei’s Government has slashed tariffs on dozens of products, from acne cream to funeral urns.
The Government has stripped away red tape at Argentina’s customs agency, including a rule that required representatives of local manufacturers to give approval for some imports from their foreign rivals.
Milei’s administration has also tripled the annual amount that Argentines are allowed to order from abroad for personal use to US$3000, exempting the first US$400 from tariffs. Amazon began offering free shipping of some products from its US store to Argentina in November.
“We are lowering tariffs that underpin the disastrous scheme to replace imports [with domestic production],” Milei told a business event in October. “It has punished the whole of society with goods and services of worse quality at a higher price, for the benefit of a privileged few.”
On December 22, the Government stopped charging a blanket tax of 7.5% on all imported goods and a 30% tax on Argentines’ overseas card purchases.
The changes put Argentina on the opposite course to much of the rest of the world. In recent years European countries and the US have erected new trade barriers to protect domestic industries from cheap imports from China and elsewhere.
Argentine manufacturing businesses warn a surge in imports could devastate a sector that employs almost a fifth of workers and has already been hit hard by the country’s economic crisis.
Manufacturing activity was down 12.7% in the first nine months of 2024 compared with the same period in 2023.
“Imports are up, demand is down, and our costs have risen,” said Pablo Yeramian, director of textile group Norfabril, who has already cut 15% of his 280 staff. “We’re trying to hold out, but we expect to cut more.”
Companies said Milei’s Government had yet to resolve the high taxes and rigid labour market that have made Argentina one of the most expensive countries in Latin America to do business.
“They want to get rid of all of the obstacles for foreign companies, but they haven’t cleared the obstacles for me,” Yeramian said. “We’re not on a level playing field.”
Milei’s reforms are the latest swing of the pendulum for Argentina’s economy. Governments from the left-leaning Peronist movement, which is allied with labour unions, have implemented tariffs and subsidies to promote domestic industry, while right-wing Governments in the 1970s and 1990s scrapped restrictions, causing waves of industrial closures.
Milei has said he wants to unleash market forces to re-orientate Argentina’s economy towards sectors where it has a competitive advantage: agriculture, mining, energy and tech, which together employ just 12% of Argentines.
Cristina Fernández de Kirchner, the former president and leader of the main Peronist party, said in November Milei “wants to reduce us again to a simple colony that exploits raw materials and to hell with all the rest”.
The economy became more closed off than it had been in decades under Milei’s Peronist predecessor Alberto Fernández, who sought to protect scarce hard currency reserves by limiting companies’ ability to pay suppliers. The restrictions severely disrupted manufacturers and retailers, leading to shortages of goods including tyres.
“The only way to import something was if you knew someone in the Government who you could pay under the table to skip the queue,” said Ricardo Martinoglio, chief executive of hardware chain Lüsqtoff, which imports and rebrands its products.
Milei’s Government resolved those issues in early 2024, lifting lengthy waiting times for payments and creating a dollar bond to help companies pay off debts they had built up to suppliers.
Now, Martinoglio said the Government’s tariff cuts would allow him to stop increasing prices despite Argentina’s still-high monthly inflation rate of 2.4%. “My drill will cost the same in two months, but your salary will have gone up,” he said, as employers regularly update salaries for inflation.
Manuel Sánchez Gómez, director of Argentina’s largest electronics retailer Frávega, said Milei’s reopening of the economy and macroeconomic stabilisation had “much improved” the business outlook. “Our planning horizon has gone from about two months to three years.”
But Miguel Guerendiain, who manages his wife Josefina’s small clothing business, said he feared the changes were too fast: “A year ago, we couldn’t find zips because of all the problems. To go from that to a completely open economy would be a mistake.”
He said taxes accounted for 40% of their price tags, and argued the current 35% tariff on clothing was needed to level the playing field. The economy ministry declined to comment on whether it would be lowered.
Julio Rodriguez Rabellini, an economist at Argentina’s Chamber of Commerce, said manufacturing’s weight in the economy “would likely shrink” under Milei. But he said the Government was moving “quite carefully”, noting that it had lowered rather than eliminated tariffs.
Milei is limited by Argentina’s membership in Mercosur, the South American trade bloc, which imposes a common tariff of up to 20% on external goods and only allows countries a limited number of exemptions. Milei called Mercosur a “prison” at its summit in November.
An official in Argentina’s industry and trade secretariat said the Government would only cut domestic taxes when they could do so “without breaking fiscal balance”, which is the backbone of Milei’s economic programme. Several of the taxes that manufacturers faced were set by provinces, they added.
Marcelo Figueiras, president of Argentine drug manufacturer Richmond Laboratories, which exports and sells locally, said Milei had “done well” to stabilise the economy this year, but had yet to lay out a “clear strategy” on industry.
“I’m not expecting subsidies or other advantages, but there is such a thing as dumping,” he said.
“There are many competitive companies [that] have survived Argentina’s pendulum, and the Government should now make clear, reasonable rules that stop it swinging and let us all grow.”
© Financial Times
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