strategy

Protecting industry to maintain jobs

Synonyms:
Maintaining employment through import control
Claim:
If a rise in imports causes the sales of an industry to contract, protecting that industry can, at least in the short run, help to maintain jobs. But this neglects the effect of the resulting price increase on demand, focuses too narrowly on the directly affected industry, and pays no attention to the unintended effects of the protection on other industries. If the protected industry provides input to other industries, then tariffs or controls on imports will raise costs and reduce employment in the industries which use the protected materials. Their job losses may exceed those temporarily saved in the protected industries. Moreover, if the exchange rate is flexible, an increase in protection which reduces expenditure on imports will, if nothing else changes, cause the exchange rate to appreciate. This will reduce profits in both exporting and import-substituting industries, which would cause employment to fall in all tradable goods industries apart from those given the increased protection. If, in addition, trading partners react to protection by increasing their own trade barriers, protection to save jobs is not only self-defeating but potentially disastrous. Although it at first seems obvious that protecting an industry against a surge of imports will save jobs, in fact it turns out to be a risky proposition.
Subjects:
Employment
Maintenance
Import, export
Industry
Protection
Control
Type Classification:
D: Detailed strategies