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The infant industry argument is an economic reason for protectionism
Protectionism

Protectionism is the economic policy of restraining trade between nations, through methods such as tariffs on imported goods, restrictive import quota, and a variety of other restrictive government regulations designed to discourage imports, and prevent foreign take-over of local markets and companies....
. The crux of the argument
Argument

* In logic, an Argument is a set of one or more meaningful declarative sentences known as the premises along with another meaningful declarative sentence known as the conclusion....
 is that nascent industries often do not have the economies of scale
Economies of scale

Economies of scale, in microeconomics, are the cost advantages that a business obtains due to expansion. They are factors that cause a producer?s average cost per unit to fall as output rises....
 that their older competitors from other countries may have, and thus need to be protected until they can attain similar economies of scale. It was first used by Alexander Hamilton
Alexander Hamilton

Alexander Hamilton was the first Secretary of the Treasury, a Founding Fathers of the United States, economist, and political philosopher. He led calls for the Philadelphia Convention, was one of America's first Constitutional lawyers, and cowrote the Federalist Papers, a primary source for Constitutional interpretation....
 in 1790 and later by Friedrich List
Friedrich List

Friedrich List was a leading 19th Century Germany and American economist who developed the "National System" or what some would call today the National System of Innovation....
, in 1841, to support protection for German manufacturing against British industry.

ectionism allows an industry to develop until it is able to compete in international trade.






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The infant industry argument is an economic reason for protectionism
Protectionism

Protectionism is the economic policy of restraining trade between nations, through methods such as tariffs on imported goods, restrictive import quota, and a variety of other restrictive government regulations designed to discourage imports, and prevent foreign take-over of local markets and companies....
. The crux of the argument
Argument

* In logic, an Argument is a set of one or more meaningful declarative sentences known as the premises along with another meaningful declarative sentence known as the conclusion....
 is that nascent industries often do not have the economies of scale
Economies of scale

Economies of scale, in microeconomics, are the cost advantages that a business obtains due to expansion. They are factors that cause a producer?s average cost per unit to fall as output rises....
 that their older competitors from other countries may have, and thus need to be protected until they can attain similar economies of scale. It was first used by Alexander Hamilton
Alexander Hamilton

Alexander Hamilton was the first Secretary of the Treasury, a Founding Fathers of the United States, economist, and political philosopher. He led calls for the Philadelphia Convention, was one of America's first Constitutional lawyers, and cowrote the Federalist Papers, a primary source for Constitutional interpretation....
 in 1790 and later by Friedrich List
Friedrich List

Friedrich List was a leading 19th Century Germany and American economist who developed the "National System" or what some would call today the National System of Innovation....
, in 1841, to support protection for German manufacturing against British industry.

Reasons for protectionism

Protectionism allows an industry to develop until it is able to compete in international trade. History provides numerous examples of the benefits of protecting infant industries. In the 1830s the average tariff of the USA was 40%, the highest in the world, allowing the development of manufacturing industries until World War II
World War II

World War II, or the Second World War , was a global military conflict which involved a Participants in World War II, including all of the great powers, organised into two opposing military alliances: the Allies of World War II and the Axis powers....
 when the manufacturing supremacy of the USA was absolute. More recently in 1939 Japan
Japan

Japan is an island country in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, People's Republic of China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south....
 kicked out General Motors
General Motors

General Motors Corporation , founded in 1908, is the world's second-largest automaker after Toyota, ranked by 2008 global unit sales. GM was the global sales leader for 77 consecutive calendar years from 1931 to 2008....
 to protect Toyota which at the time was uncompetitive in the global market. The economic miracle of Taiwan
Taiwan

Taiwan is an island in East Asia. "Taiwan" is also commonly used to refer to the country governed by the Republic of China and to the ROC itself, which governs the island of Taiwan, Orchid Island and Green Island, Taiwan in the Pacific Ocean off the Taiwan coast, the Penghu islands in the Taiwan Strait, and Kinmen and the Matsu Islands...
 has occurred with a state sector one and a half times the world average. Another good example is the agreement signed between EEC and Japan
Japan

Japan is an island country in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, People's Republic of China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south....
 in July 1991. It put a temporary protection for big auto groups (until dec 31st,1999) in order to allow them to modernize and then be able to confront Japanese competition.

Reasons against protectionism

Infant industries are by definition those that are not strong enough to survive open competition – they are dependent on government subsidies and protectionism in order to survive. At a given point in time, protectionist policy, along with inefficient industries leads to higher prices and lower quality goods for the consumer than if the good or service produced by the industry was produced on the international market.

For these reasons the infant industry argument is often criticized. Firstly it is hard for government to know which industries will ultimately turn out to have growth potential. A lack of domestic capacity or unforeseen emergence of (even more superior) foreign rivals may, in fact, prohibit industries from becoming competitive in the long run. It is often the case that rather than developing or innovating, the protected industry becomes complacent, due to a lack of competition from the international market.

Since countries that put up barriers to import
Trade barrier

A trade barrier is a general term that describes any government policy or regulation that restricts international trade. The barriers can take many forms, including the following terms that include many restrictions in international trade within multiple countries that import and export any items of trade....
s will often face retaliatory barriers to exports, protectionism could hurt certain infant industries because the size of their potential market would be smaller.