Has there ever been a situation where temporary conditions in some country (like Country Y) led them to satisfying worldwide demand? It seems that even in a year where foreign competition was strong, domestic producers would be able to find SOME revenue for their goods.
What would stop the industry from rebuilding the following year? Supplies have dropped as foreign production decreased, and the demand (presumably) has remained the same. The human and natural resources and infrastructure couldn't have changed all that much in the course of the year.
It seems to me that a few enterprising tulip producers would be able to recognize the 1-year aberration, find a way to weather the storm, and expand their market share the following year against reduced domestic competition.
- The low-cost remote industry may not be sustainable. It would be unwise to allow upheaval locally for what could turn out to be a short term gain (for example selling your city buses and firing the drivers because Uber is a thing).
- The industry may not be able to scale particularly well. This is why milk production is heavily regulated in Ontario—it keeps the price steady and avoids boom and bust cycles which would hurt both the consumer and producer.
- There's a non-zero cost to having the local industry fold; specialized machinery is written down and sold for scrap, entities (and sometime individuals) go bankrupt, people are out of work, etc.
- There can be sovereignty issues with being overly dependent on a foreign power for some critical resource, for example oil, food, energy.
- The cost of shipping is an unknown in the long term. Flying in produce from far away makes sense when airplanes and fossil fuel are cheap, but do we want to build our society on an assumption that that will be true indefinitely?
Imagine a simple world with two countries (1 and 2) and two commodities (A and B). It might be that country 1 has something that allows them to produce both A and B with greater efficiency than can 2. But even when that's the case, they (and the whole world) do better when they continue to concentrate on producing the one for which they have the greatest advantage (say, A). Even if 1 can also produce B more efficiently than can 2, it works out better if they ignore that, leaving it to 2, and just concentrate on producing all the A they can.
That solution doesn't change if there are more countries and more commodities. It might make the big picture more complicated, but it remains a better solution for both 2 and for the entire world if 2 concentrates on producing whatever it's best at.
(Note that this is purely based on economics of commodities, and not national security. When some of those commodities are things like "missiles", it may well be that a country things they need to have a guaranteed secure supply, should one of their trading partners decide not to be friends anymore.)
But the most important part is when a country chooses to not specialize in something, they have the ability to specialize in something else. US has to decide whether the opportunity cost of getting manufacturing back is worth it, given it won't be a very employable area with all the automation.
Jobs of some sort. Teachers, construction workers, health care workers, programmers. Farmers, utility workers, electricians and craftsmen of different sorts. Case workers for the country's child protection agency. Folks that speak the local language who work in call centers. Sure, some of these are low-paying jobs, but lets face it: so are some factory jobs (i've worked in one and had friend that worked in others, which pay a little above minimum wage).
Simply put, you aren't going to ship off all the jobs. So they aren't the best at manufacturing? So what? Obviously, if they have buying power, the country has some other strengths. They simply wouldn't show up when looking at manufacturing only.
2) You become dependent on the countries you're importing from. See Russia's fear of Intel chips, various embargoes, etc.