6.5 Income Support and Adjustment in Shrinking Industries

Governments must often decide whether to provide support for industries facing relentless import competition that causes them to shrink. As an example, the textile and clothing industries in Canada have continually lost domestic market share, shedding a large number of jobs over time. With such industries in long-term decline, governments may decide to provide temporary protection from imports to help resources employed within the industry find application elsewhere.

The arguments for protection against imports in the case of a dying industry are the same as for an infant industry. There may be acceptable reasons to support the industry if external benefits exist and are sufficient to outweigh the usual deadweight losses of the production and consumption effects. That is, if area [latex]\textit{e}>[/latex] area [latex](\textit{b}+{d})[/latex]. Even so, import protection may not be the most appropriate policy. A policy that gets to the root of the problem may be superior because it reduces economic loss. Since there is no reason to make imports more costly for consumers, thereby reducing consumption, a production subsidy which avoids the consumption effect will be better.

In addition, since a large number of jobs are continually being lost, governments can facilitate the transition of workers into other industries by providing assistance for retraining, job search, and relocation. In practice, governments provide workers who lose their jobs for structural reasons with trade adjustment assistance (TAA). Similarly, firms and communities may be able to avail themselves of low-interest financing and technical assistance to develop new lines of production and facilitate market research.