Import competition from low-wage countries

Unemployment caused by foreign competition

Nature

Import competition from low-wage countries refers to the economic challenge faced by domestic industries when goods produced in countries with lower labor costs enter their markets. This competition often leads to downward pressure on local wages, job losses in affected sectors, and the decline of traditional industries unable to match lower production costs. Critics argue that such competition can exacerbate income inequality and social dislocation, particularly in developed economies, while also limiting the ability of domestic firms to invest in innovation and workforce development. Policymakers frequently debate measures to mitigate these negative impacts.

Background

The global significance of import competition from low-wage countries emerged in the late 20th century, as trade liberalization and the rise of manufacturing hubs in Asia, notably China, began to reshape industrial economies. Academic and policy attention intensified following the 1990s, when empirical studies linked surges in imports to job losses and wage pressures in developed nations, prompting widespread debate on globalization’s uneven impacts. This phenomenon remains central to contemporary economic and political discourse.

Incidence

Import competition from low-wage countries has intensified over recent decades, affecting industries and labor markets across both developed and developing economies. The phenomenon is particularly pronounced in sectors such as textiles, electronics, and manufacturing, where firms in higher-wage countries face mounting pressure from lower-cost imports. This has contributed to factory closures, job losses, and wage stagnation in affected regions, while also fueling political and social tensions over globalization and trade policy.
In 2023, the European textile industry experienced significant disruption as imports from Bangladesh and Vietnam surged, leading to the closure of several factories in Italy’s Prato district and resulting in widespread local unemployment.

Claim

The threats to Europe come not from countries with cheap unskilled labour, These, after all, need to buy capital goods that they mostly do not produce. The real threat is from newly industrialized nations, such as South Korea, getting out of cheap labour products into sophisticated goods that undercut the exports of self-indulgent Europeans in third markets. In the years ahead, the really tough competitors in this field may be countries of the former Soviet empire if they can harness their combination of high technical skills and low wages once the transition from communism to the free market is complete.

Counter-claim

Fears about import competition from low-wage countries are vastly overblown. Global trade benefits consumers with lower prices and greater choice, while pushing domestic industries to innovate and improve. The notion that such competition destroys economies is outdated; history shows that open markets drive growth and prosperity. Instead of scapegoating foreign workers, we should focus on adapting and upskilling. Import competition from low-wage countries is simply not a significant problem in today’s dynamic world.