Economic Nonsense: 15. Protection of domestic industries will safeguard jobs


Sometimes when jobs are threatened by cheap imports there are calls for government to step in and safeguard those jobs by subsidies, tariffs or import quotas.  The aim is to make the domestic goods artificially cheaper by subsidy, or to make the imported goods more expensive by taxing them. Some domestic jobs can be retained, at least temporarily, by this tactic.  But the more expensive domestic goods will not be able to compete on world markets outside the country.  They will find their foreign market share diminishes as people opt for the cheaper ones. Where subsidies are used, domestic taxpayers are made poorer; where tariffs are used domestic customers lose access to cheaper goods.  In both cases they are paying to support the industry concerned.

Some years ago in the UK the Lancashire textile industry was protected in this way.  It might have prolonged its decline, but it did not stop it.  Mass-produced low-cost textiles were being made more cheaply by foreign competitors.  Eventually the UK textile industry moved to high added value luxury and designer products that sold at a premium in both domestic and foreign markets.  Some UK textile products have become world-beaters, without the need for subsidies or tariffs to protect the jobs they sustain.

The advent of the World Trade Organisation (WTO), which succeeded the General Agreement on Tariffs and Trade (GATT), outlaws most of this kind of protection by multilateral agreement.  This means that calls to protect domestic jobs by such means now fall upon deaf ears.  The government has signed pledges not to engage in such practices, in return for the agreement of its trading partners to refrain similarly.

There are still grey areas, though, with Boeing and Airbus each alleging that the other receives indirect government support.  It is generally true that when governments all try to protect domestic jobs at the expense of foreign ones, everybody loses.  The world found this to its cost in the era of the Great Depression.