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 they compete with goods produced in countries where labor costs are significantly lower. This competition can lead to job losses, wage stagnation, and reduced market share for local businesses, as consumers may prefer cheaper imported products. While it can benefit consumers through lower prices, it poses risks to domestic manufacturing and can exacerbate income inequality. Policymakers often grapple with balancing free trade benefits against the need to protect local industries and maintain employment levels in the face of global competition.

Incidence

Between 1991 and 2011, import competition from low-wage countries, particularly China, accounted for an estimated 21% of the decline in U.S. manufacturing employment, according to research by the National Bureau of Economic Research. European countries, such as Germany and France, have also experienced significant job losses in textiles and apparel due to increased imports from countries with lower labor costs, including Bangladesh and Vietnam.
A notable example occurred in the United Kingdom between 2000 and 2010, when the British textile industry lost over 100,000 jobs, largely attributed to rising imports from China following its accession to the World Trade Organization in 2001.

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

Import competition from low-wage countries is often overstated as a problem. In reality, it drives innovation, lowers consumer prices, and enhances product variety. Instead of fearing competition, we should embrace it as a catalyst for efficiency and growth. The focus should be on improving domestic industries through adaptation and skill development, not on protectionist measures that stifle progress. Ultimately, the benefits of global trade far outweigh the perceived threats of low-wage imports.