Infant-industry

The infant-industry argument refers to the need of protectionism to emerging industries in a country in order to become competitive with its foreign counterparts. Many times some firms within industries have the potential to become major players in the economy, however due to its state prematurity in the industry they are in disadvantage to other older and bigger firms. If firms that have the potential to become as competitive as other foreign firms are protected by the government, they will eventually succeed into being as competitive as the foreign firms. Government can help infant-industries by implementing trade policies such as tariffs, subsidies, etc. Also, as years go by and the industry matures and attains the economics of scale necessary to become competitive, government aid will gradually decrease until the industry is independent and competitive against foreign firms.

One of the problems that the infant-industry argument poses are that most of the times it is hard for governments to choose the right industry to protect. Many times, it is hard to identify which industries could truly become competitive in world markets. Another criticism for the infant-industry argument is that the industries that are being helped lose motivation to become more competitive. If industries keep relying on government protection they will lack necessary incentives to actually reach the potential they have. According to Grieco & Ikenberry this would lead governments to be by “an uncompetitive industry and a hard choice between allowing that industry to remain in place, (…), and permitting trade but forcing a larger and perhaps more painful reallocation of national resources across sectors...” (46)

As a result, the major challenge with the infant-industry argument is that governments should be smart when choosing which industry to protect, because if they mistakenly support the wrong industry it could lead to more problems rather than progress.