Saturday, October 6, 2012

Imports good after all?

Protectionism is the buzzword everywhere.With the Doha impasse and severe economic crisis gripping major economies, trends of countries puling themselves towards inward looking policies is noticed. Though lofty declarations in multilateral fora about bringing down protectionist wall and encouraging free trade is often espoused, actions are often diametrically the opposite. National policies aim to strengthen local manufacturing, exports and restrict imports.I have blogged about this trend here and here.

Today's blogpost is contrary to this trend. I found a piece that projects a different picture about free trade, imports and national interest.

Trade Freedom:How Imports Support U.S. Jobs: This American Heritage piece questions conventional wisdom that imports are necessarily bad. Highlighting the benefits of imports in terms of employment and national competitiveness it prescribes a national policy that recognizes that imports supports domestic jobs.While there is an obvious co-relation between exports and local job creation, the study finds that imports, contrary to popular wisdom also has a positive impact on local jobs.

Analyzing the gains to the Apparel industry int he U.S. from imports, the piece argues that a more rigorous analysis of the data related to imports and jobs need to be done to actually understand the co-relation between imports and jobs. It would be naive and factually incorrect to assume that increased imports lead to an increase in domestic job loss. Interesting argument considering that imports from China into the U.S. is a constant source of tension not the issue of U.S. unemployment.
"In a political environment where trade and job creation are being hotly debated, it is vital to have a correct understanding of how imports truly affect jobs. The reality is that the increased economic activity associated with every stage of the import process helps support American jobs. A lot of them. The following analysis shows that over half a million American jobs are supported by imports of Chinese-made clothes and toys alone. These jobs are in fields such as transportation, wholesale, retail, construction, and finance, and in myriad other activities that are involved in turning a manufactured product into a good that is ready for use by the average American."
Can there be a case that imports actually protect jobs domestically? While it is obvious that it leads to loss of jobs in certain activities since the production has shifted to tother countries, does it not lead to job creation in other allied activities? Is the value of job creation in other activities less, equal or much more than the job loss in the activity undertaken outside? Has there been any analysis on this data? Added to this is the complexity global value chains bring to the table. A product is "produced" in so many countries that imports become essential for completion of the product. This piece Is Unilateral Free Trade a Good Thing? the related debates argue in the context of solar subsidies in China and the U.S.argue that unilateral free trade might be beneficial in the long run.

Ofcourse, domestic policy is still far away from recognizing the positive impact imports can have on job creation. Democratic politics, domestic constituencies and the belief that strengthening local production capabilities make imports an easy target. 

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