Why do car firms in Argentina sell wine?

The rise of China as a producer of just about anything has had a detrimental impact on the industry of many developed nations. Brazil and Argentina are particularly concerned about cheap imports from China impacting on their main export market – North and South America.

Brazil and Argentina are worried about deindustrialisation and have resorted to protectionism – trade barriers/import restrictions. This protectionist policy means that the consumers are the ones that suffer from the higher prices. Argentine officials now require importers to match the value of their orders with exports which had led some car importers to sell wine. This is a particular worry for South American countries as history tells us that for large countries to become developed there needs to be a strong industrial sector. For Brazil the problems are:

– the high domestic interest rates – 9.75% – which make the currency uncompetitive for exports
– a high tax level
– poor infrastructure

Brazil and Argentina had the chance to turn the NATFA (North America Free Trade Agreement) into a 34 country Free-Trade Area of the Americas but they turned it down. If they are to succeed they will need to embrace the global economy and maybe revisit potential trade agreements.

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