The Import Substitution Trap in the Realities of the Automotive Industry.

Abstract

—The article examines mechanisms underlying the formation of the “import substitution trap,” which is a stable ineffective institution that serves as a means of protecting national producers from foreign competition. The costs and risks of rooting this institution in the Russian automotive industry are analyzed, the import substitution strategies of the Russian government at the current stage of the industry’s development are investigated, the experience of import substitution in the foreign automotive industry is summarized. The conclusion is substantiated that the import substitution policy brings short-term effects but is disadvantageous in the long term. Domestic substitutes can gain a strong market position but their success is fragile and requires continued government support and protectionist patronage. The author shows that the policy of import substitution becomes successful when it relies on competition, when the domestic import substitute, having entered the market and strengthened its position, is gradually deprived of preferential conditions, and the state support of its manufacturer is gradually cut while the market is transferred to a “freewheeling” mode for all players.