Trade Barriers - Explain with examples the infant industry justification for trade protectionism
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Last updated 3 Feb 2023
The infant industry justification for trade protectionism refers to the argument that new or developing industries in a country need temporary protection from foreign competition in order to grow and mature. The idea is that these industries lack the economies of scale and competitiveness of established foreign competitors, and therefore require protection in the form of tariffs, quotas, or other trade barriers to help them become competitive in the long run.
For example, consider a country that wants to develop a new automobile industry. The new industry may face intense competition from established automobile producers in other countries, which may have lower costs due to economies of scale and more advanced technology. In this case, the government of the country may implement trade barriers such as tariffs on imported automobiles, to protect the new domestic industry while it builds up its capacity and competitiveness.
Another example is a developing country that wants to promote the growth of its solar panel industry. The government may implement tariffs on imported solar panels to protect the domestic industry from foreign competition, and provide it with time and resources to develop its technological capabilities and reach economies of scale.
It's important to note that trade protectionism for infant industries is a controversial policy, as it can lead to increased costs for consumers and decreased efficiency in the protected industries. Additionally, it may discourage innovation and hinder the development of a level playing field in global trade. The effectiveness of trade protectionism for infant industries in promoting economic development and competitiveness remains a subject of debate among economists.