I examine the effects of import tariffs and export subsidies in a two-
sector model with sector-specific wage differentials and an equilibriu
m level of unemployment. In general, such policies change both the com
position and level of employment. Policies designed to attract workers
to the high-wage sector could also result in reduced employment and l
ower social welfare. This could happen if the low-wage sector is also
the relatively labour-intensive sector. In such situations the optimal
policy might entail protecting the low-wage labour-intensive sector.