Government Intervention in the Economy

Treasury Secretary Scott Bessent was in Brazil discussing trade and this quote popped out at me.

Despite diplomatic controversies caused by Trump’s economic agenda in Brazil, Bessent supported the use of tariffs as part of a broader effort to reindustrialise. He noted that while tariffs generate short-term revenue, the long-term goal is to encourage companies to move production to the United States, shifting government revenue towards domestic economic activity.

This should sound familiar to anyone who has looked at Latin America from the 1950s-1980s. Import substitution industrialization was a large-scale effort to industrialize, encourage local production, and shift government revenue to domestic economic activity, all through the use of tariffs. As Mike Allison and I wrote in U.S. and Latin American Relations:

The idea was that to reduce dependency on imports, the state would direct, encourage, and subsidize targeted domestic industries, whose products would substitute for foreign goods (p. 136).

It's so similar, but not identical. At least as yet, we're not seeing the same level of state investment in industry (e.g. ownership, even if partial). The irony is that Latin America was doing it in large part to protect itself from the United States, which in turn exerted tremendous pressure to liberalize and open markets up to U.S. products. Now the script is flipped.

The irony is extended further since in the same interview, Bessent said we had a “generational opportunity to strengthen ties with governments that support market-oriented reforms.” At the moment, however, the U.S. is not such a country. "Market-oriented" means that the market determines outcomes with a minimum of government manipulation. Recent reforms in terms of government intervention in the economy is decidedly not market-oriented. In fact, Latin American countries have been pursuing free trade agreements elsewhere.