How does the infant industry argument support trade protection?

The infant industry argument supports trade protection by advocating for temporary barriers to allow new industries to develop.

The infant industry argument is a theory in economics that suggests new industries need protection from international competition until they become mature and capable of competing on their own. This argument is often used to justify trade protection policies such as tariffs, quotas, and subsidies.

The rationale behind this argument is that new industries, often referred to as 'infant industries', are not initially as efficient or competitive as their established foreign counterparts. They may face high start-up costs, lack economies of scale, or need time to develop their technology and skills. Without protection, these industries could be outcompeted and driven out of the market by more mature foreign industries before they even have a chance to grow.

Trade protection measures such as tariffs increase the cost of imported goods, making domestically produced goods more competitive. Quotas limit the quantity of imported goods, reducing competition for the infant industry. Subsidies can provide financial support to the infant industry, helping it to cover its high start-up costs and invest in technology and skills development.

The infant industry argument is not without its critics. Some argue that trade protection can lead to inefficiencies, as it shields firms from the pressures of competition, which can drive innovation and efficiency. There is also a risk that temporary protection measures become permanent, leading to long-term inefficiencies and higher costs for consumers.

However, the infant industry argument remains a key justification for trade protection, particularly in developing countries where new industries may need time and support to develop. It is seen as a way to promote economic diversification, reduce dependence on imports, and foster domestic industries that can compete on the global stage.