The risk of Milei’s shock economic opening for Argentina
Many of Argentina’s industry leaders were initially enthusiastic supporters of President Javier Milei’s proposals to downsize the state, fix public finances, and deregulate business activity. But more than halfway through Milei’s four-year term, they have become alarmed as the liberal economist’s ‘shock therapy’ has soured business and in some cases threatened to wipe out their existence entirely.
Certainly, the Milei administration has a number of economic achievements to show for. Argentina has recorded budget surpluses for the first time in decades, the economy has bounced back with growth of 4.4% in 2025 after a 1.3% contraction the year before, and inflation has receded to 31.5% in 2025, from 118% in 2024 and 211% in 2023.
But in the sprawling industrial belts surrounding the country’s three largest cities – Buenos Aires, Córdoba, and Rosario – there is little sense of improvement. For decades, these hubs formed the backbone of Argentina’s middle class, churning out everything from textiles and auto parts to consumer electronics. Today, they are steeped in profound crisis.
During the Milei administration, some 2,436 companies have shuttered their operations, and more than 73,000 formal industrial jobs have been eliminated from 2023-2025, according to consultancy firm Audemus. Argentina’s industrial sector has recorded the second-worst decline worldwide over the last two years, with a contraction of 7.9%, compared to 3.5% growth in Brazil and 5.2% expansion in Chile during this period. Argentine manufacturers operate at a mere 53.8% of capacity. Amid this decline of the sector, an icon of Argentina’s industry, tyre manufacturer Fate, announced in February the closure of its plant in Buenos Aires province and the elimination of more than 900 jobs.
Rust Belt
The parallels with the declines in manufacturing in the US Midwest during the 1970s or in the UK under former prime minister Margaret Thatcher (1979-1990) are becoming harder to ignore. Some analysts suggest that the country is reaching a ‘Rust Belt’ inflection point. Unlike a cyclical recession where factories temporarily slow down, the current trend looks to become a permanent restructuring.
Indeed, the Industrial Union of Argentina (UIA) in March sounded the alarm bell, warning that entire industrial sectors and scores of jobs were at risk. Manufacturers argue that Milei was quick to open the economy to foreign competition and to dismantle domestic subsidies, but not so quick to fix all the structural disadvantages that Argentine businesses face, from high taxes to poor infrastructure.
Utility costs soared, foreign goods that no longer pay import tariffs flooded the market, and a currency appreciation further eroded Argentine competitiveness. Small and medium-sized companies, which have no cash reserves nor access to capital, have been hardest hit. To be sure, decades of protective import tariffs acted as a disincentive for Argentine businesses to modernise and invest in the latest technologies. The results were often pricier and inferior quality products. But at the same time, macroeconomic mismanagement, which led to multiple defaults and the imposition currency restrictions, meant that capital to invest and foreign currency to import machinery were scarce.
In the face of growing concerns and criticism, President Milei has remained steadfast, blasting industry leaders as corrupt and addicted to government handouts. He has been remarkably candid, acknowledging that certain sectors of Argentine industry will disappear because they will not be able to compete. In line with Milei’s liberal economic school of thought, the rationale is that the market will reallocate resources to sectors where Argentina holds a natural competitive advantage: lithium, copper, shale gas from the Vaca Muerta reserve, and agricultural products.
In addition, Milei and his economy minister Luis Caputo argue that the industrial sector has already bottomed out and will re-emerge more competitive once inflation dips further and currency controls are lifted. They argue that the government’s large-scale investments scheme (Rigi) will help to bring in billions of dollars in foreign direct investment (FDI), although most of that capital is currently benefitting extractive industries rather than manufacturing. While these extractive sectors have expanded and hold much growth potential, overall investment has been pouring in far slower than expected. Indeed, FDI last year was negative, with a net outflow of US$1.5bn. That is one of Argentina’s worst results in recent decades.
It is also far from clear that fresh investments could offset the job losses from manufacturing. For one, there are natural obstacles to labour migration. People do not just pick up their belongings and abandon their homes. And when they do, they often leave behind ghost towns plagued by rising levels of poverty and crime.
Whether Milei’s shock therapy to reshape Argentina’s manufacturing sector succeeds may depend on more dialogue between the private sector and the government to establish joint objectives and a roadmap on how to get there.
Permanent closures
Unlike a standard cyclical recession, where workers are furloughed and return when demand picks up, the current decline of Argentina’s industrial sector involves the permanent closure of specialised plants. When a high-tech metallurgical workshop or a chemical plant closes, the know-how of its workforce – the engineers, master welders, and technicians – evaporates. Socially, the industrial sector has historically provided the jobs that supported the Argentine middle class – positions with health insurance, pension contributions, and union protections. The disappearance of such roles is placing an immense strain on the social fabric. If the promised V-shaped recovery does not materialise, or if it only benefits the mining and oil sectors in the remote provinces, the political backlash in populous industrial cities could be explosive.
Dependence on commodity exports
Shutting down industries and betting on commodity exports also means the economy produces less added value. It also increases the dependence on imports for strategic goods such as medicines and microchips, a trend many OECD countries have sought to reverse in recent years by reindustrialising with investments into strategic sectors. While it may be cheaper today to import a circuit board from China than to assemble it in Argentina, the total loss of domestic manufacturing capacity leaves a nation vulnerable to global supply chain shocks.