The resurrection of Raul Prebish

By: Beatrice E. Rangel - 09/04/2025

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On April 2nd, the President of the United States took the podium to announce his administration's international economic policy to his fellow citizens and the world. As the story unfolded, one's mind returned to streams of discourse buried in memory for at least four decades. The speech painted a picture of a global situation in which the development of the United States was compromised as a result of the rest of the world's protectionism against its products, while the United States opened its market, creating an imbalance that had destroyed domestic industries and condemned the American middle class to impoverishment. The Trump administration will end this situation by imposing tariffs on all nations in the world, particularly those with a trade surplus with the United States. Once the tariff wall is imposed, industries will return to the United States, there will be significant investment and job creation, and the American economy will be relaunched on very solid foundations.

Curiously, this same logic was used by Raúl Prebish, the Argentine economist who was the founding director of the United Nations Economic Commission for Latin America and founding director of the United Nations Conference on Trade and Development (UNCTAD): The policy recommended for Latin American nations in the aftermath of World War II assumed that it would become the launching pad for development. According to the promoters of this policy, led by Prebish but supported by Celso Furtado, Juan Noyola, Osvaldo Sunkel, and Fernando Enrique Cardoso, the tariff fence would expand the domestic market and, with it, the GDP and the development rate. Seventy years later, not only has what was predicted not happened, but the countries that have achieved the highest level of development in the region are those that have embraced the free market and the rule of law. These countries are Chile, Costa Rica, Barbados, and Uruguay. Mexico emerged from its state of economic prostration at the end of the last century thanks to the free trade agreement with the United States and Canada.

The question then arises. Given that Prebish was one of the world's greatest economists, why did his model fail? The answer was given many moons ago by a man named David Ricardo, who discovered that every nation benefits from trade because the resource endowment is unequal among nations. There are nations that have an excess of minerals and others that not only lack them but also have flora and fauna so rich and varied that they could populate deserts. At that time, Mr. Ricardo realized that if the nation with an excess of minerals exploited them and bought food and inputs for the construction of the country with the rich flora and fauna, both nations would double their income because they dedicated themselves to producing what was cheapest to produce and consequently created more jobs. Behind the jobs came middle-class families, and behind them came consumer spending, and behind consumption came production. In short, the problem lies not in protecting local industry but in concentrating economic activity in the area where each nation's comparative advantages reside.

Well, the United States has so far focused on the activities in which it enjoys advantages. And those activities are not manufacturing but industrial robotics, the digitalization of productive tasks, and the integration of Artificial Intelligence into productive tasks. China, on the other hand, has comparative advantages in manufacturing that no one in the West will ever be able to compete with. Because China's workforce is one of the most efficient in the world for two reasons. One, the majority practices Confucianism, and this spiritual practice favors saving over spending, which makes every Chinese person financially disciplined. Furthermore, China's two most widely spoken languages, Mandarin and Cantonese, require their speaker to master 15,000 characters. Therefore, the Chinese mind is a minicomputer that makes them efficient and effective.

Bringing manufacturing to the United States is the best way to increase the budgets of the already battered American middle class, which has fallen from representing 45% of the population to 30% of the population. In short, just as import-substitution industrialization failed to become the rocket of development in Latin America and instead created a rent-extracting business class incapable of competing successfully anywhere in the world, in the United States we run the risk of being forced to produce expensive clothing, household goods, and electronic devices while China concentrates its resources on incorporating artificial intelligence into all productive activities. And the chasm between East and West between the 20th and 21st centuries will deepen. This is already painfully apparent when one boards a plane, whether from Shanghai, Tokyo, Singapore, or Kuala Lumpur, bound for any point in the West. The experience is similar to traveling from the 21st century to the 20th century.

Fortunately for all mortals, and especially for those of us who are American citizens, it seems that President Trump is using the tariff wall to force the world to destroy its own. Once this is achieved, the United States would impose equal tariffs on every nation in the world. If he achieves this, he will be the world leader in trade liberalization. And we could decree the closure of the WTO because after twenty years, he hasn't managed to liberate any market in the world. Hopefully, his next idea is to make his friends in Silicon Valley pay taxes in the United States because—via transfer pricing—they only pay in Ireland for market-generated income. They doubled their income because they were dedicated to producing what was cheaper to produce, and consequently, they created more jobs. Behind the jobs came middle-class families, and behind them came consumer spending, and behind consumption, production. In short, the problem lies not in protecting local industry but in concentrating economic activity in the area where each nation's comparative advantages reside.

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