By Harshita Kain
One of the biggest reasons why an increase in imports is not desirable is because of unemployment as an increase in the imports over the exports destroys jobs in the domestic market. Free trade in a particular good causes the price of that good to fall, reducing the quantity of that good produced in that country and thus reducing employment in the industry which produces that good. A very recent example is Wal-Mart’s increased trade deficit with China eliminated 133,000 manufacturing jobs, 68% of those jobs lost in USA from Wal-Mart’s imports. Hence to overcome this problem import quotas are imposed which aim to increase the limit the availability of imports in the domestic economy and thus encourage domestic consumers to purchase domestic production.
However when we compare the statistics, balance of trade which is the net exports and unemployment do not show the relation they should. In India the balance of trade reached an all time low of -20210.90 USD Million in October of 2012. A negative balance of trade means the imports were higher than the exports. It was expected that the increase in the trade deficit would decrease the number of employed people in India but instead it was during this period that the number of employed people in India reached a record high. Hence it cannot be said that trade deficit has a direct impact on unemployment.
But how does this actually happen? This happens as free trade also creates jobs at the same time that it destroys them. When a country imports from other countries, those countries obtain resources to buy some other good from that country and hence creating job opportunities in the industries that produce the other good. Hence there is still a lot of ambiguity over whether imports actually create or destroy jobs in a country or the employment rate in a country depends on many other factors.