Infant industry argument

The Infant industry argument is an economic rationale for trade protectionism

Protectionism

Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...

. The core of the argument

Argument

In philosophy and logic, an argument is an attempt to persuade someone of something, or give evidence or reasons for accepting a particular conclusion.Argument may also refer to:-Mathematics and computer science:...

 is that nascent industries

Infant industry

In economics, an infant industry is a new industry, which in its early stages is unable to compete with established competitors abroad.Governments are sometimes urged to support the development of infant industries, usually through subsidies or tariffs...

 often do not have the economies of scale

Economies of scale

Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...

 that their older competitors from other countries may have, and thus need to be protected until they can attain similar economies of scale. The argument was first fully articulated by Alexander Hamilton

Alexander Hamilton

Alexander Hamilton was a Founding Father, soldier, economist, political philosopher, one of America's first constitutional lawyers and the first United States Secretary of the Treasury...

 in his 1790 Report on Manufactures

Report on Manufactures

The Report on Manufactures is the third report, and magnum opus, of American Founding Father and 1st U.S. Treasury Secretary Alexander Hamilton...

, was systematically developed by Daniel Raymond

Daniel Raymond

Daniel Raymond was the first important political economist to appear in the United States.He authored Thoughts on Political Economy and The Elements of Political Economy .- Economic theory :...

, and was later picked up by Friedrich List

Friedrich List

Georg Friedrich List was a leading 19th century German economist who developed the "National System" or what some would call today the National System of Innovation...

 in his 1841 work The National System of Political Economy, following his exposure to the idea during his residence in the United States in the 1820s.

Many countries have successfully industrialized behind tariff barriers. For example, from 1816 through 1945, tariffs in the USA were among the highest in the world. According to Ha-Joon Chang

Ha-Joon Chang

Ha-Joon Chang is one of the leading heterodox economists and institutional economists specialising in development economics...

, "Almost all NDCs [Newly Developed Countries] had adopted some form of infant industry promotion strategy when they were in catching-up positions. In many countries, tariff protection was a key component of this strategy, but was neither the only nor even necessarily the most important component in the strategy."

Despite this, infant industry protection is controversial as a policy recommendation. As with the other economic rationales for protectionism, it is often abused by rent seeking

Rent seeking

In economics, rent-seeking is an attempt to derive economic rent by manipulating the social or political environment in which economic activities occur, rather than by adding value...

 interests. Even when infant industry protection is well–intentioned, it is hard for governments to know which industries they should protect; "infant" industries may never "grow up" relative to "adult" foreign competitors. For example, during the 1980s Brazil

Brazil

Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...

 enforced strict controls on the import of foreign computers in an effort to nurture its own "infant" computer industry. This industry never matured; the technological gap between Brazil and the rest of the world actually widened, while the protected industries merely copied low-end foreign computers and sold them at inflated prices. In addition, countries that put up barriers to import

Trade barrier

Trade barriers are government-induced restrictions on international trade. The barriers can take many forms, including the following:* Tariffs* Non-tariff barriers to trade** Import licenses** Export licenses** Import quotas** Subsidies...

s will often face retaliatory barriers to their exports, potentially hurting the same industries that infant industry protection is intended to help.

Ernesto Zedillo

Ernesto Zedillo

Ernesto Zedillo Ponce de León is a Mexican economist and politician. He served as President of Mexico from December 1, 1994 to November 30, 2000, as the last of the uninterrupted seventy year line of Mexican presidents from the Institutional Revolutionary Party...

, in his 2000 report to the UN Secretary-General, recommended "Legitimising limited, time-bound protection for certain industries by countries in the early stages of industrialisation," arguing that "However misguided the old model of blanket protection intended to nurture import substitute

Import substitution

Import substitution industrialization or "Import-substituting Industrialization" is a trade and economic policy that advocates replacing imports with domestic production. It is based on the premise that a country should attempt to reduce its foreign dependency through the local production of...

industries, it would be a mistake to go to the other extreme and deny developing countries the opportunity of actively nurturing the development of an industrial sector."