Infant Industry Protection

Definition

Infant industry protection refers to the economic policy of shielding newly established or emerging industries from foreign competition through tariffs, subsidies, or other forms of support. This concept is based on the belief that young industries need time to grow and develop competitive advantages before they can compete on equal footing with established foreign firms.

5 Must Know Facts For Your Next Test

1. Infant industry protection is often justified by the argument that new industries can face disadvantages due to the established market dominance of foreign firms.
2. The effectiveness of infant industry protection depends on careful policy design; if mismanaged, it can lead to inefficiencies and prolonged reliance on government support.
3. Critics argue that prolonged protection can lead to complacency among domestic firms, reducing their incentive to innovate and improve productivity.
4. Historical examples of successful infant industry protection include industries in South Korea and Taiwan during their development phases in the late 20th century.
5. The ultimate goal of infant industry protection is to create a self-sustaining industry that can eventually compete globally without ongoing government support.

Review Questions

• How does infant industry protection influence the competitive landscape for new industries compared to established foreign competitors?
  • Infant industry protection influences the competitive landscape by allowing new domestic firms to operate without the immediate pressure of competing against well-established foreign companies. By imposing tariffs or providing subsidies, governments can create a more favorable environment for these emerging industries to grow, develop their technologies, and build their market presence. This support is crucial for building competitive advantages and ensuring long-term sustainability within the market.
• Evaluate the potential drawbacks of implementing infant industry protection policies and their impact on domestic economic efficiency.
  • While infant industry protection policies aim to support new industries, they can lead to significant drawbacks such as inefficiencies in resource allocation and potential market distortions. If domestic firms become overly reliant on government assistance, they may lack the motivation to innovate or improve productivity. This can stifle competition and result in higher prices for consumers. Additionally, if protections are not gradually lifted, it may hinder the industry's ability to become globally competitive in the long run.
• Assess the historical examples where infant industry protection was successfully implemented, focusing on the long-term effects on those economies.
  • Successful historical examples of infant industry protection can be seen in countries like South Korea and Taiwan during their industrialization phases. These nations strategically implemented protective measures that enabled their emerging industries to grow and develop technological capabilities without the immediate threat of foreign competition. Over time, these industries became globally competitive, leading to robust economic growth and higher standards of living. This illustrates how effective implementation of infant industry protection can have positive long-term effects if coupled with policies that encourage innovation and adaptability in an evolving global market.

Related terms

Tariffs: Taxes imposed on imported goods, often used as a tool to protect domestic industries by making foreign products more expensive.

Subsidies: Financial assistance provided by the government to support a particular industry, helping it lower production costs and enhance competitiveness.

Trade Barriers: Regulations or policies that restrict international trade, which can include tariffs, quotas, and import licenses aimed at protecting domestic industries.