Protectionists continually return to the argument that protections in the form of tariffs, quotas, subsidies, procurement policies and antidumping regulations save jobs and keep the working and middle-class living standards from declining. However, such arguments ignore the actual percentage of job loss due to import competition and fail to take into account the effect that limiting imports can have on jobs in other satellite and export industries. One of the more damaging consequences of protectionism is that it raises prices on certain necessary commodities and so forces the less wealthy in society to spend a higher percentage of their income on purchasing basic goods to support their families.
In order to consider the argument that protectionism helps save jobs, it is important to first consider exactly how many jobs are lost as a result of import competition hurting domestic industries. In 2004, Ben Bernanke placed the percentage of job loss from import competition only slightly more than 2% of gross job loss. This figure is so slight that it hardly supports claims that protectionist policies need to be adopted to save jobs. Another economist, Griswold cites the steel industry as an example of this disconnection between job loss and trade liberalization. In the past few decades this industry has experienced bouts of protection and yet employment has declined 70 percent. He instead blames higher productivity for this job loss as does Bernanke in his assessment.
Regardless of the small percentage that import competition has on overall job loss, it is important to assess whether the statement that imports destroy jobs has any basis in reality. As Irwin states in ‘Free Trade Under Fire’ this statement is ‘incomplete’. It is true that job loss occurs because of an increase in imports as domestic industries are forced to compete with foreign imports. However, this idea fails to take into account the jobs that are created through exports and also those jobs affected by more expensive imports. Policies such as tariffs or quotas applied to imports will see a decline in imports. According to the Lerner Symmetry Theorem, such a decrease in imports will in turn see a decline in exports and so while jobs in imports may be saved, export jobs will be lost. There is also the risk that import barriers will affect the many industries that rely on cheaper imports in order to compete in an international market. This was evidenced in 2003 when the Bush administration placed tariffs on steel imports in an attempt to protect the local steel industry. In doing so steel prices significantly increased and other industries, like auto and construction companies, using steel as an input faced higher production costs. Higher costs lower productivity and inevitably mean there will have to be job cuts in order for a company to remain viable.
If import barriers raise prices of imported and domestically produced goods then it necessarily follows that this rise in cost will be passed on to consumers. Unfortunately many protectionist barriers are aimed at products that the vast majority of Americans purchase as basic and necessary goods. If this is the case then it would seem that the claim that protectionism keeps middle and working class living standards high is flawed. The poorest in any nation spend a higher percentage of their income buying goods such as apparel, footwear and food staples and so have less money to spend in other areas. The sugar industry in the US is among the most highly subsidized industries and costs consumers $1.9 billion a year in higher prices. Such subsidies also encourage surplus production and so sugar producers dump their surplus on the world markets at below cost price, forcing developing countries to accept lower prices and in effect driving them out of the market. These poorer nations do not have many industries from which to draw revenue and so are significantly disadvantaged when another nation’s subsidies force world prices down. It would seem that such protectionist methods have the affect of hurting lower-income families by increasing their expenditure on essential goods and taking necessary revenue from developing nations.
When considered as an overall policy in any nation, protectionism fails on many accounts. Job loss due to import competition is such a small percentage of gross job loss it would be more beneficial to look to other reasons for job cuts rather than restrict imports and possibly harm employment in other export and import related areas. It is also unhelpful to claim that imports destroy jobs when we consider how many jobs would be lost if exports decreased and industries relying on cheaper imports were forced to pay more. Finally it would seem that almost all import barriers have the effect of raising prices for domestic consumers. As the targets of many of these barriers are essential goods for consumers, low-income families are perhaps the biggest losers in a protectionist world. Higher prices mean middle and working class families will have to devote more of their income just to buy the basics. While protectionism may save some jobs it destroys others and contributes to increased pressure on poorer families both in developed and developing countries.