Infant industry protection

Definition

Infant industry protection is an economic policy aimed at shielding emerging industries from international competition until they become mature and competitive. This approach often involves the imposition of tariffs, subsidies, or other forms of support to help local businesses grow in a global market. By allowing these new industries to develop, countries hope to foster economic diversification and self-sufficiency.

5 Must Know Facts For Your Next Test

1. Infant industry protection can lead to temporary inefficiencies in the economy as resources may be diverted to less competitive sectors.
2. Support for infant industries is often justified by the belief that these sectors can create jobs and stimulate overall economic growth in the long term.
3. Critics argue that prolonged protection can lead to dependency on government support, discouraging innovation and efficiency within protected industries.
4. Successful examples of infant industry protection can be seen in several East Asian economies that implemented strategic policies to nurture emerging sectors.
5. The World Trade Organization (WTO) has specific provisions that allow for limited protection of infant industries under certain conditions.

Review Questions

• How does infant industry protection balance the need for local economic development with the risks of market inefficiencies?
  • Infant industry protection aims to foster local economic development by giving nascent industries a chance to grow without facing immediate competition from established foreign firms. While this can lead to market inefficiencies, as resources might be allocated away from more productive sectors, the long-term goal is to create a competitive domestic industry that can eventually thrive in the global market. The challenge lies in finding the right balance between providing necessary support and ensuring that industries become self-sufficient.
• Evaluate the potential long-term impacts of implementing infant industry protection on a country's overall economic health.
  • Implementing infant industry protection can have mixed long-term impacts on a country's economy. On one hand, it may lead to the development of new sectors, job creation, and reduced reliance on imports. However, if protections are maintained for too long, it could foster complacency among domestic producers and inhibit innovation. A balanced approach that gradually reduces protections as industries mature is crucial to avoid stunting overall economic progress.
• Assess how infant industry protection policies interact with global trade agreements and their implications for international relations.
  • Infant industry protection policies must navigate complex global trade agreements that often favor free trade and open markets. Countries seeking to protect their nascent industries may face scrutiny or retaliatory measures from trading partners, leading to tensions in international relations. Balancing these protective measures with commitments under agreements like those established by the WTO requires careful negotiation and strategic planning. The successful implementation of such policies can influence a nation's standing in international trade dynamics and its relationships with other countries.

Related terms

Tariffs: Taxes imposed on imported goods to make them more expensive than local products, thus protecting domestic industries.

Subsidies: Financial assistance provided by the government to support local businesses and reduce their production costs, enhancing their competitiveness.

Trade Liberalization: The process of reducing trade barriers, such as tariffs and quotas, to encourage free trade between nations.