4
Trade, Jobs, and Income Distribution

The argument against free trade that resonates most strongly with the public and with politicians is that imports destroy jobs. Indeed, the greatest fear about international trade in general, and imports in particular, is that it can harm workers, reduce wages, and lead to unemployment. But is this an accurate view of trade as a whole? And if so, are import restrictions the remedy? This chapter addresses the relationship between trade, jobs, and wages, and examines government policies to assist displaced workers. The chapter also considers the underlying causes of trade deficits to see if a country suffers when it imports more than it exports.


Does Free Trade Affect Employment?

The claim that trade should be limited because imports destroy jobs has been around at least since the sixteenth century.1 And imports do indeed destroy jobs in certain industries: for example, employment in the Maine shoe industry and in the South Carolina apparel industry is much lower because both industries have faced stiff competition from imports. So we can understand why the plant owners and workers and the politicians who represent them would like to change this situation by imposing trade barriers.

But just because imports destroy some jobs does not mean that trade reduces overall employment or harms the economy. (Technology also destroys jobs, such as the replacement of bank tellers with ATM machines, office assistants with computers and voice mail, and manual

1 See Irwin 1996b, 36ff.

-105-

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