How firms respond to import competition: Labour force reduction, product/industry switching, and off-shoring

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As global trade has expanded, many studies have documented the level of impact of import competition on employment, but we know less about how firms adapt. This column uses data on Japanese firms from 1997 to 2015 to show that rising imports have led many firms to reduce their workforce, but firms that engaged in product switching experienced less severe employment losses than those that did not. Offshoring also plays a crucial role in mitigating the adverse effects of import competition.

As global trade has expanded - especially with the ascent of China - concerns about job losses and deindustrialisation in high-income countries have grown. While many studies document the level of impact of import competition on employment, we know less about how firms adapt. Do they downsize, switch product lines/industries, or reorganise production through offshoring to cushion the blow? In a recent paper (Ito and Matsuura 2025), we address these questions using a uniquely rich panel of Japanese firms spanning 1997-2014, focusing on three margins of adjustment: employment (especially production workers), industry switching, and offshoring (imports of intermediates from Asia). We also ask when these adjustments occur - either immediately or with a lag.

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