Infant industry protection

Definition

Infant industry protection refers to the economic policy of shielding emerging domestic industries from foreign competition through tariffs, subsidies, or other forms of government support. This strategy aims to allow new industries to grow and become competitive in the global market, contributing to economic development and job creation. It connects with various aspects of development strategies, focusing on how countries can foster local industries to stimulate economic growth.

5 Must Know Facts For Your Next Test

1. Infant industry protection is based on the idea that new industries often lack the economies of scale and experience to compete against established foreign firms.
2. This policy can lead to short-term inefficiencies as protected industries may become reliant on government support rather than improving their competitiveness.
3. Successful infant industry protection requires careful planning and timing; too much protection can hinder innovation and efficiency.
4. Historically, countries like South Korea and Japan have utilized infant industry protection effectively to nurture their high-tech sectors during their developmental phases.
5. Critics argue that infant industry protection can result in trade disputes and retaliation from other countries, potentially harming the overall economy.

Review Questions

• How does infant industry protection impact the development of local industries in emerging economies?
  • Infant industry protection can significantly impact the development of local industries by providing them with a buffer against foreign competition. This allows nascent companies time to grow, innovate, and achieve economies of scale without being immediately overwhelmed by established players. By implementing tariffs or subsidies, governments can foster an environment where local industries have a chance to develop capabilities that enable them to compete internationally in the long run.
• Evaluate the potential drawbacks of implementing infant industry protection policies in a country's economy.
  • While infant industry protection policies aim to support local businesses, they can also lead to several drawbacks. One major concern is that such protections may create inefficiencies, as companies may become complacent without the pressure of competition. Additionally, prolonged protection can strain public resources through ongoing subsidies or lead to trade tensions with other nations. If these industries fail to evolve into competitive players on their own, the economy might suffer from stagnation and a lack of innovation.
• Analyze how successful examples of infant industry protection have shaped the global economic landscape, particularly in reference to specific countries.
  • Successful examples of infant industry protection have notably shaped the global economic landscape by demonstrating how strategic government intervention can foster industrialization. Countries like South Korea and Japan employed such policies post-World War II to build robust technology sectors. Their success in nurturing these industries not only transformed their economies but also positioned them as competitive players in global markets. This shift has encouraged other developing nations to consider similar strategies for economic advancement, influencing global trade dynamics and competition.

Related terms

Tariffs: Taxes imposed on imported goods, making them more expensive and less competitive compared to domestic products.

Subsidies: Financial assistance provided by the government to support local businesses, reducing their operational costs and encouraging growth.

Trade Protectionism: Economic policy that restricts imports from other countries through tariffs, quotas, and other regulations to protect domestic industries.