Vulnerability of economies to import penetration

Increased import penetration and loss of competitiveness of domestic industries can lead to mounting pressures for protectionism. The governments of many industrialized nations have introduced restraints against developing countries' exports of manufactures, largely for the reason of preserving domestic jobs.
Late 1980's studies into the likely impact on employment of increasing imports in Germany, the UK and the USA, indicated that the overall magnitude of labour displacement would not be large. For many imports, the required increase in demand to offset the assumed increase in imports from the developing countries was insignificant. For others it was high and not likely to be attained, especially in view of the low-income elasticity of the demand for these products, which include clothing and footwear, leather and leather products, and wood and cork products. The labour displacement effect of increased imports was also modest and seemed far more manageable than the displacement effect resulting from increases in labour productivity in these three industrialized countries.
Liberalization by the developed market economy countries of their tariff and non-tariff barriers to imports from developing countries would cause injury to many of the factors of production which are employed in affected import-competing industries in the industrialized world. It is likely that the scope of the generalized system of preferences and other forms of trade liberalization have been, or will be, adjusted by governments of developed market economy countries because of anticipated injury to domestic factors of production. Furthermore, it is possible that the actual intent of such liberalization measures may be at least partially offset by 'escape clauses' and similar provisions designed to protect vulnerable sectors of production in import-competing industries. Since the share of the developing countries in the world trade in manufactures is very small, the over-all effect of the increase in imports from the developing countries is not likely to constitute a serious problem. However, an increase in such imports may have a significant impact on employment in certain industries and certain regions of an industrialized country.
1. There is considerable scope for the industrialized countries to expand their imports of industrial products, capital-intensive as well as labour-intensive, from developing countries without seriously reducing employment in the industries directly affected. For some industries, in which labour productivity is substantially below the overall manufacturing average, an increase in competing imports would provide a salutary impetus to shifting their workers, especially workers in the least efficient producing units, to new or expanding industries with labour productivity higher than average, or to industries producing goods for export to developing countries. This process of labour transfer would be facilitated by the vigorous application of measures of structural adjustment. Such structural employment problems as may arise from increased import competition from developing countries seem far more manageable than the employment problems presented by rising labour productivity resulting from technological progress.

A far more significant loss of jobs has been due to the debt crisis. Some 8 million jobs have been lost in the North by a reduction of imports by Latin America and Africa. In part, this has increased protectionism further reducing the capacity for third world countries to import from the North.

2. There is no evidence that chronic unemployment and declines in real wages in industrialized countries are the result of competition from low-wage countries. Imports of manufactures from developing countries account for less than 5% of consumption of manufactures in industrialized countries and therefore cannot explain the major labour problems of these countries. Although some primarily low-skilled workers have been adversely affected in this way, the number of such workers is necessarily small relative to the economy as a whole. Far more jobs have, for example, been lost through technological innovation. The fastest growing markets for industrialized countries have in fact been developing countries.

(D) Detailed problems