Buy Indian only???

With the global economic crisis worsening, there have been mails / posts about how Indians can help their country by buying Indian goods. The argument is that if Indians buy only Indian goods and boycott foreign goods and brands, India will be able to save a lot of foreign exchange. But will reducing the consumption of foreign goods actually help India? Let us see what history tells us...

In the 1910s and 1920s, global production capacity was increasing at a phenomenal rate, due to widespread use of mass production and huge efficiency gains brought on by the use of farm tractors in agriculture. The US was fearful that products and foodgrains from other countries will flood the US market and lead to job losses in US industries and farms. With the intention of protecting the US farmers and industries, the US government passed a law called the Smooth-Hawley Tariff Act.

Smooth-Hawley Tariff Act: The Act raised US tariffs on over 20,000 imported goods to record levels. It imposed an effective tax rate of 60% on more than 3,200 products and materials imported into the US, almost quadrupling previous tariff rates. In essence, it made imports of many products into the US uncompetitive.

Global reaction: Following the act, there was a huge global outrage, and countries all over the world took steps to counter this. Canada preemptively imposed new tariffs on 16 products that altogether accounted for around 30% of U.S. exports to Canada. Other countries in Europe and elsewhere also raised tariffs or banned US goods altogether.

Result: U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932. Overall, world trade declined by around 66% between 1929 and 1934. Unemployment which was at 7.8% in 1930, jumped to 16.3% in 1931, 24.9% in 1932, and 25.1% in 1933.

Although the act was passed after the stock-market crash of 1929, some economic historians consider the political discussion leading up to the passing of the act a factor in causing the crash, the recession that began in late 1929, and its eventual passage a factor in deepening the Great Depression.

As can be seen, banning imports or raising tariffs can cause similar reactions from other countries, leading to a reduction in overall trade. In such a case everyone is worse off. Hence banning foreign products and using only Indian products may not be such a good idea.




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This post presents a point of view which differs from conventional wisdom. Apart from being a good read (hopefully), it can be a good starting point to help readers, preparing for CAT (IIM) or other MBA interviews, think differently. Since the data / facts for these posts are derived from a host of sources and websites, readers are advised to cross-check the authenticity before using them anywhere.