Infant Industry Argument

Definition

The infant industry argument is a theory in economic policy that advocates for the protection of emerging domestic industries from foreign competition until they become mature and competitive. This concept is significant in discussions around global political economy and trade barriers, as it supports the idea that temporary protectionist measures can help new industries grow, leading to increased innovation, job creation, and long-term economic development.

5 Must Know Facts For Your Next Test

1. The infant industry argument suggests that certain industries may need protection because they are not yet able to compete on equal footing with established foreign competitors.
2. Supporters argue that without protection, new industries may fail before they can achieve economies of scale or develop their technological capabilities.
3. Critics contend that the infant industry argument can lead to long-term inefficiencies and reliance on government support if protection is maintained too long.
4. Historically, many countries have used the infant industry argument as a rationale for implementing tariffs and quotas during their industrialization processes.
5. The success of the infant industry argument often depends on the government's ability to identify which industries truly require protection and to set an appropriate timeline for reducing that protection.

Review Questions

• How does the infant industry argument justify the implementation of protectionist measures in a global political economy?
  • The infant industry argument justifies protectionist measures by asserting that emerging industries need temporary safeguards from foreign competition to develop their capabilities. By imposing tariffs or quotas, governments aim to nurture these nascent sectors until they can operate competitively in the global market. This approach is seen as beneficial for fostering innovation and economic growth, particularly in developing countries trying to establish their industrial base.
• Evaluate the potential risks associated with relying on the infant industry argument as a basis for trade policy.
  • Relying on the infant industry argument can pose significant risks, including creating inefficiencies within protected industries that may become dependent on government support. This dependency can stifle competition and innovation, leading to stagnation rather than growth. Additionally, prolonged protection can result in retaliation from trading partners and distortions in the overall market dynamics, potentially harming consumers through higher prices and reduced choices.
• Analyze how the infant industry argument can influence global trade dynamics and international relations between countries.
  • The infant industry argument influences global trade dynamics by encouraging nations to adopt protectionist policies that can lead to tensions with trading partners. When one country imposes tariffs or subsidies to protect its emerging industries, affected nations may respond with their own protective measures, escalating trade disputes. This interaction shapes international relations as countries navigate their economic interests while attempting to balance fairness and competitiveness in a globalized market.

Related terms

Protectionism:

An economic policy aimed at shielding domestic industries from foreign competition through tariffs, quotas, and other trade barriers.

Tariff:

A tax imposed on imported goods, which raises their prices to make domestic products more competitive.

Trade Liberalization: The process of reducing or eliminating trade barriers to encourage free trade between countries.