Infant Industry Argument

The Infant Industry Argument is an economic rationale for implementing trade protection measures to allow emerging domestic industries to establish and grow without the pressures of international competition.
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Definition

The Infant Industry Argument contends that fledgling industries in developing economies require protection from international competition until they become mature and competitive. Advocates of this argument suggest that without state intervention, through mechanisms like tariffs or import duties, nascent industries may falter due to their inability to compete with established foreign entities. The concept is rooted in the belief that temporary protection will enable these industries to develop economies of scale, improve productivity, and ultimately thrive in the global market without government support.

Examples

  1. South Korea’s Automotive Industry: During the 1960s and 1970s, South Korea implemented protective measures to support its infant automotive industry. As a result, companies like Hyundai and Kia grew, eventually becoming competitive global players.

  2. United States Textile Industry: In the early 19th century, the U.S. implemented tariffs on imported textiles to protect its burgeoning textile industry from established British manufacturers.

  3. Brazilian Computer Industry: In the 1980s, Brazil restricted imports of foreign computer technology to nourish its local IT sector, leading to the growth of companies like Positivo.

Frequently Asked Questions

Q: How long should protection for an infant industry last?
A: The duration of protection can vary, but it typically depends on the rate of growth and development of the industry. Continuing protection indefinitely is generally discouraged as it may foster inefficiency and complacency.

Q: What are the potential downsides of the Infant Industry Argument?
A: Potential downsides include fostering inefficiency, encouraging corruption, the difficulty of removing protections once established, and the potential for retaliatory measures from trade partners.

Q: How do tariffs help in protecting an infant industry?
A: Tariffs make imported goods more expensive, thus reducing foreign competition and giving domestic industries a price advantage, which can aid in their growth and development.

  • Tariff: A tax imposed on imported goods and services to restrict trade and raise government revenue.

  • Import Duty: A specific kind of tariff levied on imported goods to protect domestic industries and generate revenue.

  • Protectionism: A governmental policy to restrict international trade to help domestic industries by imposing tariffs, import quotas, and other regulatory measures.

  • Economies of Scale: Cost advantages attained by expanding the scale of production, which leads to a reduction in average costs.

Online References

  1. Investopedia - Infant Industry
  2. Wikipedia - Infant Industry Argument
  3. The Balance - Understanding the Infant Industry Argument

Suggested Books for Further Studies

  1. “Economics: Principles, Problems, and Policies” by Campbell McConnell, Stanley Brue, and Sean Flynn
  2. “Principles of Economics” by N. Gregory Mankiw
  3. “The Wealth of Nations” by Adam Smith
  4. “Development as Freedom” by Amartya Sen
  5. “Globalization and Its Discontents” by Joseph E. Stiglitz

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