Countries and regions that implement import substitution. Import substitution policy refers to a country taking various measures to restrict the import of certain foreign industrial products, promote the production of related domestic industrial products, and gradually substitute domestic products in the domestic market. Imported products create favorable conditions for domestic industrial development and achieve industrialization. Also known as the import substitution industrialization policy, it is the product of the inward-oriented economic development strategy. The general approach is for the state to encourage foreign private capital to establish joint ventures or cooperative enterprises in the country by providing preferential treatment in taxation, investment and sales; or to improve the level of industrialization through processing trade such as supplied materials and supplied parts. In order to enable the development of domestic alternative industries, it is necessary to use measures such as raising tariffs, implementing quantitative restrictions, and foreign exchange controls to restrict the import of foreign industrial products, so that domestic industries subject to import competition can develop and grow under conditions of little or no competition. Table of contents [hide] 1 Overview 2 Restrictions 3 Main defects 4 Practical impact 5 Development orientation 6 Related entries 7 References Import substitution - Overview Import substitution refers to using domestic products to replace imported products, or in other words, by restricting industrial products imports to promote domestic industrialization. Import substitution Import substitution was proposed by two economists from developing countries, Prebisch and Singer, in the 1950s and 1960s. Since then, many developing countries in Asia, Africa and Latin America have implemented import substitution strategies to varying degrees. . In the international market, the prices of agricultural and mineral primary products produced in developing countries continue to fall, while the prices of consumer goods produced in developed countries continue to rise. Unequal trade relations have become increasingly prominent. In order to overcome the unequal trade between developed and developing countries and develop their own national industries, the majority of developing countries strive to develop the production of some goods that originally relied on imports for the consumption of a small number of wealthy classes in the country, thereby achieving import substitution. Import substitution generally goes through two stages. The first stage is to establish and develop a number of final consumer goods industries, such as food, clothing, home appliance manufacturing and related textile, leather, wood industries, etc., in order to replace imported goods with domestically produced consumer goods. It enters the second stage when it can replace imported goods and meet domestic market demand; in the second stage, import substitution shifts from consumer goods to the production of capital goods and intermediate products that are in short supply in the country, such as capital-intensive machine manufacturing, petroleum processing, steel industry, etc. type industry. After these two stages of development, the import substitution industry has become increasingly mature, laying the foundation for comprehensive industrialization. Import substitution-restrictive conditions The implementation of the import substitution strategy requires the implementation of trade protection policies, which mainly include three aspects: import substitution first, tariff protection, that is, high tariffs on the import of final consumer goods, capital goods and capital goods required for the production of final consumer goods Intermediate products are subject to low or no tariffs. Second, import quotas limit the import quantity of various commodities to reduce the import of non-essential goods, ensure that state-supported industrial enterprises can obtain imported capital goods and intermediate products, and reduce their production costs. Third, the domestic currency should appreciate to reduce the cost of imported goods and alleviate the pressure of insufficient foreign exchange. Among them, tariffs and quotas are the most important protective measures in the import substitution strategy. Import substitution - the main flaw: Import substitution policy is necessarily at the expense of domestic consumers, and because it reduces the country's degree of connection with the world market, it results in a relatively small domestic market, high production costs, low economic benefits, and poor product quality. Not competitive enough. Therefore, although developing countries that implement import substitution policies have promoted the development of domestic light industry to a certain extent and accelerated industrial growth, this is only a short-term phenomenon and cannot be maintained in the long term. This forces them to adjust or even give up and implement export substitution industrialization policies. After the Second World War, Latin American developing countries that originally pursued this policy further actively pursued it. Many newly independent developing countries in Asia and Africa also successively adopted import substitution as a way to industrialize, and there was a climax of import substitution. To implement this policy, we must first correctly select the types of industrial products to be substituted, that is, decide which industries should be used as import substitution industries. Generally, industries that have demand in the domestic market but cannot withstand foreign competition are selected, and then protective measures are used to turn these domestic import-competing industries into import-substituting industries to speed up the industrial process. Import substitution - actual impact The implementation of import substitution has stimulated the development of consumer goods industries in national industries to a certain extent, strengthened the ability of developing countries to develop their economies independently, and can import substitution reduce the economy's dependence on foreign countries. Some specialized technical personnel and skilled labor It has also been cultivated, and government departments have also gained experience and knowledge in managing the economy. Therefore, many Latin American, South Asian, and Central European countries have chosen the import substitution strategy and achieved economic development goals to a certain extent. However, this strategy is limited in stimulating the development of national industry, because it cannot completely eliminate external dependence. It still relies heavily on imports. It only changes the structure of imported goods from finished product imports to imported goods. Raw materials, technology patents, machinery and equipment, intermediate products and capital that are not available domestically. When developing countries use high tariffs to protect national industries, developed countries also use various measures to undermine or break tariff protection and resist import substitution by developing countries. Therefore, import substitution strategies often appear to be powerless, and many flaws are gradually exposed in practice. .
Some scholars believe in their research that the core problem of the import substitution strategy is that it violates the principle of comparative advantage. In the late 1960s and early 1970s, the import substitution strategy was criticized by many scholars. In 1970, Little and others examined the industrialization development experience of Brazil, India, Mexico, Pakistan, the Philippines and other countries as well as Taiwan, China, and concluded that the import substitution strategy seriously reduced economic efficiency, inhibited exports, aggravated unemployment, and led to international revenue decline. Deterioration of branch. Therefore, in fact, starting from the mid-1960s, some countries and regions began to shift to a more open trade strategy. In particular, Asian countries such as Japan, South Korea, Singapore, and China's Taiwan region experienced a period of import substitution industrialization transition. Later, it adopted an export-oriented strategy that spared no effort. Japan has always been known for not opening its domestic market to the outside world. Until now, Japan's imports have only accounted for about 10% of its GDP, while China's imports have accounted for 20% or more of GDP in the past six years. This non-openness of the Japanese economy will inevitably lead to the implementation of import substitution in many industries. It is precisely because Japan is committed to promoting economic growth through exports on the one hand, and constantly implementing import substitution domestically on the other hand, that has resulted in Japan's foreign trade pattern in which exports have been far greater than imports for many years. Import Substitution - Development Orientation China's Import Substitution Processing Base The most obvious fact is: at the same per capita production level, the smaller a country is, the higher its dependence on foreign trade is bound to be. For a country the size of Germany, its entire foreign trade accounts for more than 50% of its GDP, but its trade with EU countries accounts for more than 50% of its entire foreign trade volume. In this way, if the EU's trade with non-EU is calculated as a proportion of the EU's GDP as a unit, the dependence on foreign trade will be reduced to just over 20%. This fact shows that the smaller a country is, the higher its economic dependence on foreign countries, the more export-oriented its economy is, and the more efficient its export-oriented economic development is. However, this fact also shows that while small countries and regions such as the "Four East Asian Tigers" can achieve economic development through export-driven development, China as a whole may not necessarily be able to achieve rapid economic development through the same approach. In fact, the larger a country is, the greater its degree of introversion as it completes industrialization. The degree of export-oriented economy of the United Kingdom when it carried out the industrial revolution was higher than that of the United States when it surpassed the United Kingdom at the end of the 19th century. The reason was first of all that the United States was much larger than the United Kingdom. The United States is still one of the least dependent countries on foreign trade among developed countries. In the past 20 years, the ratio of U.S. foreign trade volume to GDP has greatly increased, but now this ratio is only about 25%. More importantly, Japan and the "Four Tigers" in Asia were able to successfully drive economic growth through exports, largely due to the special international economic environment in the first few decades after the war. At the end of World War II, Western countries reached a consensus to liberalize international trade, and countries greatly lowered trade barriers to each other. This policy impact of trade liberalization caused international trade to grow dramatically, and its growth rate was much faster than the world economic growth rate in 25 years. Before the 1980s, Western countries generally implemented Keynesian macroeconomic policies, and the total demand of the entire world economy was relatively sufficient. In this international environment, it is easier for backward countries to increase exports, and export-oriented economic growth has considerable advantages over import substitution strategies. Times have changed, and the international economic environment is now very different from what it was then. Nowadays, the trade barriers in developed countries are already quite low, and there is not much room for reduction. The focus of reducing trade barriers is directed at developing countries. All Western economic powers are trapped by serious fiscal and social expenditure deficits, and are afraid of causing inflation, so they dare not take strong policy measures to expand aggregate demand. Both of these factors prevent developing countries from having an international environment in which they can easily increase their exports sharply. The export-oriented economic growth strategy has fallen into crisis, which is actually the deepest cause of the East Asian financial crisis.