The Supply-Side Benefits of Imports

Many students on introductory economics courses hold on to a rather naive view that exports are good and that importing is negative for economic performance. Exporting for its own sake (mercantalism) carries obvious risks as countries that have accumulated huge trade surpluses have found out. And access to cheaper imports of goods and service can have a very liberating effect on the supply-side of the economy. Lower priced imports create competition for domestic industries and allow home-based manufacturing businesses to source cheaper intermediate and capital goods.

You would expect the Economist to support trade liberalisation - but this feature in the Economist is worth reading for students who want to understand some of the supply-side benefits of reducing import tariffs.

“As part of those reforms, India slashed tariffs on imports from an average of 90% in 1991 to 30% in 1997. Not surprisingly, imports doubled in value over this period. But the effects on Indian manufacturing were not what the prophets of doom had predicted: output grew by over 50% in that time. And by looking carefully at what was imported and what it was used to make, the researchers found that cheaper and more accessible imports gave a big boost to India’s domestic industrial growth in the 1990s.”

The rest of the article is here - The merits of imports