Stop Import, The Dream That (never) Comes True

President Joko Widodo ordered to echo hatred for foreign products when he opened the 2021 Ministry of Trade meeting. Mr. President also wants shopping centers to provide space for Indonesian products, especially MSMEs, not to be filled with brands from abroad. Great instruction Mr. President, since we know that import contributes negatively to economic growth compared to export.

To stop buying foreign products, it means that we must provide substitute products that are produced domestically or also known as import substitution. To be able to produce substitutes for imported products means we must strengthen national manufacturing sector, which unfortunately (in my opinion) has not been successful so far.

Why did the import-substitution industrialization strategy fail to achieve its intended goal? In my opinion, this cannot be separated from the current or past national trade policies. Any (trade) policy applied usually has goal to surplus the trade (balance) then promotes the economy. So, it is important whether the trade policy to link with the trade system comprehensively to develop the economy optimally. The national trade policy usually related with the system of industrialization, such as outward-looking (export-oriented) policies and import substitution policies.

Outward-looking (export-oriented) policy is a policy that shift the focus from production for the domestic market to the products for export to foreign markets. The policies, reduces or even eliminates tariff, quotas and other trade barriers. So, domestic prices move closer to the world prices.

Import substitution policy is substitution of imports by products produced by domestic producers. The policies will be followed by other protective policies such as tariff, import quota, production subsidies and (sometime) exchange rate. Other than that, it usually only a certain period to foster infant industries until they are ready to compete globally.

Unfortunately, the policies fail to achieve the intended goal, since domestic producers enjoy of no competitors in domestic market. Government applies many trade barriers to protect domestic products, even though their products are in poor quality and expensive. So they forget or even omit to improve the technology and quality of the products.

The policies should gradually reduce the protection, but since the conditions above occurred, domestic producers would not be able to compete with foreign products that better quality and cheaper. Then eventually, the government has no choice to extend the policies. Well, it is a challenging instruction and quite hard to do Mr. President. But again, it is never wrong to do the right thing (Mark Twain).