ChainWhat it assumes · how to break it
Start
The government imposes a tariff on imported steel, as the US did in 2018 when it placed a 25% tariff on most steel imports.
1
As a result, imported steel becomes dearer, so buyers switch from imports to domestically produced steel.
expenditure switching · XED
expenditure switching · XED
Assumes: Domestic steel is a close substitute for imported steel.
But: Some specialist grades of steel are not made at home, so buyers keep importing them and simply pay the tariff.
2
This means domestic steel output rises, and because labour is a derived demand, steelworks keep existing jobs and hire more workers.
derived demand
derived demand
Assumes: Firms raise output by employing more labour.
But: A plant with spare capacity or a high level of automation can raise output with few extra workers.
3
In addition, steelworkers' wages are spent in local shops and services, creating further jobs in steel towns.
multiplier
multiplier
Assumes: The extra income is spent locally.
But: Consumers elsewhere pay more for goods made with steel, so their real incomes and spending fall, offsetting the gain.
4
Therefore, employment in the protected industry rises and structural unemployment in steel-making regions is avoided or delayed.
structural unemployment
structural unemployment
Best link to attack
Assumes: Jobs saved in steel are not offset by job losses elsewhere.
Assumes: Jobs saved in steel are not offset by job losses elsewhere.
But: Far more workers are employed in industries that use steel than in making it, and these firms face higher costs and may face retaliation against their exports, so total employment can fall.
End
Employment in the protected industry and its local area rises, though total employment depends on effects in steel-using and export industries.
Evaluation chain
- E1However, whether employment rises overall depends on what happens in industries that use steel or sell abroad.
- E2Since the tariff raises costs for every firm that uses steel, car, machinery and construction firms become less competitive at home and abroad.
- E3In addition, in 2018 the EU responded to US steel tariffs with tariffs on US goods such as bourbon and motorcycles, so export industries can lose sales too.
- E4So the tariff protects visible jobs in one industry, but total employment may barely change or may even fall once jobs lost in steel-using and export industries are counted.
Another way to attack it: Protection may only delay job losses: if the industry has lost its comparative advantage, jobs disappear once the tariff is removed, and the delay has been paid for by consumers and steel users.
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Questions this answers
- Assess whether imposing tariffs is an effective way to protect jobs.
- Discuss the effects of a tariff on employment in the domestic economy.
- Explain why a tariff on steel may reduce employment in other industries.
Diagram
Tariff diagram: world supply at Pw shifts up to Pw + tariff. Domestic output rises from Q1 to Q2. A labour market diagram shows demand for steelworkers shifting right; a second shows demand for labour in steel-using industries shifting left.
Reverse and related
Tariff removed → steel jobs are at risk from cheaper imports, while steel-using and export industries may gain jobs.