Thread by @gonwei

A month ago I wrote this 🧵 on why #import duties were not the answer to #Pakistan's Balance of Payments constraints. #ImportBans are certainly not the answer either. Rather, they exacerbate the underlying problem. Five thoughts. 🧵👇

https://twitter.com/gonwei/status/1516274444997730306?s=20&t=Za89qP00QHuGOQKJTaB5uA

1\ The usual: CAD results from a macro imbalance (Saving too low relative to investment, so foreign saving needed (borrowing) (CAD is the mirror image of borrowing from the rest of the world (financial account of BOP)). Fixing the CAD takes increasing saving (cool off demand).

2\ The #importban in #Pakistan reduces #imports (does it? see point 3\ below), but not the CAD, because it also reduces #exports.
profit.pakistantoday.com.pk/2022/05/01/imp…

3\ The way this #importban in #Pakistan is done in SRO 598-1/2022 for the main items banned (cars, mobiles) looks more like an incentive to domestic producers NOT TO EXPORT than an attempt to save forex. In fact, it gives them a generous #monopoly power. Why? 👇👇

3b\ It targets built cars, built mobiles, but not its parts. Monopoly to the assembler, #Pakistan consumer captive. The domestic company will increase demand 4 import of parts (that come cheap under 5th schedule even w/tariff exemptions) and sell w/supernormal profits.👇👇👇

3c\ Imports will not change much, but composition will (more imports of parts for mobiles, less of cbu mobiles). Tariff revenue will fall. #Pakistan #trade #importban

4\ More importantly: the #monopoly power given to domestic firms producing articles under the ban are such that it'll be difficult to convince them to export! Difficult to find a large enough #tax break that compares! #Pakistan

5\ So, the #ImportBan gives no relief in the short run. More problematic, gives long run headaches in the form of distortions. Less competition, less tech transfers means less productivity. More policy uncertainty means fewer orders, fewer investment. #Pakistan