Question

What is the ‘infant industry’ argument in the context of trade? Go online and find an example where the infant industry argument might be applicable. But then give your own analysis: Do you personally agree with this argument or not, in the context of your example.

Answer 1

The infant industry argument is a theory to safe guard nascent industry through trade protectionism . Infant industries do not possess economies of scale . Older competitor industries in other countries enjoy this economies of scale and thus can produce at lower cost and grab larger market share .

Hence these infant industries require protection till they attain such levels of scale . So they are justified to impose tariff on imports etc .

Let us take the example that a less developed country tries to gain comparative advantage in electronics where countries like Japan already excel . But in the long due to trade protection they might lose on consumer surplus and economic welfare . So protection should be given only upto a certain level .