Employment Promotion Argument

It is believed that imposition of tariff leads to expansion of employment and incomes. The belief was extremely popular in the thirties – the period of the great depression when cyclical unemployment prevailed throughout the world. Tariff was then regarded as a fairly practicable means of lessening the cyclical unemployment prevailed throughout the world. Tariff was then regarded as a fairly practicable means of lessening the cyclical unemployment. Imposition of tariff restricts certain imports so that some money is saved in the domestic economy which will be spent upon the purchases of the products of protected home industries. As the protected industries expand employment therein increase and income of the community increase. This generation of income will have a multiplier effect. There will be an expansion of employment and income in other sectors of the economy as well. The overall arise in output will require more capital. Hence net investment in capital goods industries will rise, which will stimulate further investment employment and income through acceleration effect. Hence the final increase in employment and income is greater than that initially generated by the expansion of protected industries moreover tariffs may even attract foreign capital as producers abroad seeing their market threatened, may set up a plant within the country. Therefore the existence of unemployment in an industry usually is considered a very good reason for the imposition of a tariff.

Free traders, however, express doubt about the practicability of the employment argument. In their view since exports pay for imports a curtailment of imports through tariff will cause an equal diminution in exports. Thus, the additional employment that has materialized in the protected industries by curtailing imports may be neutralized by an equal volume of unemployment in the export industries as a result of the shrinkage. This view offered traders, however, is erroneous first of all the curtailment of imports due to tariff is not necessarily followed by a decline in exports if a country has a monopoly in the export of certain commodities it will not contract in spite of tariff duties and even if there is realization by the tour countries at least some time elapses, before a temporary expansion in employment and income are effected in the county secondly, even if exports decline it may not necessarily led to a contraction of the exporting industries when home consumption increases as a result of saving that has been realised due to restriction on imports. Hence tariffs will have a favourable effect on the level of employment and income in the country at least in the short run.

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