Globalisation and Trade Restrictions: Protecting Infant Industries

This section explores the reasons why countries might impose trade restrictions, focusing specifically on the concept of protecting infant industries. We will examine the arguments for and against this policy and its potential economic consequences.

What is an Infant Industry?

An infant industry is a new industry that is considered to be inefficient compared to established industries in other countries. It often requires time to gain economies of scale, develop expertise, and become competitive in the global market.

The Argument for Protecting Infant Industries

The primary argument for protecting infant industries is that it allows them to develop and eventually become competitive. Without protection, these new industries may be unable to survive against established, larger, and more efficient foreign competitors.

Here's a breakdown of the reasoning:

• Increased Domestic Production: Protectionist measures like tariffs or quotas shield the infant industry from foreign competition, allowing it to increase its domestic production.
• Economies of Scale: As production volumes rise within the protected industry, companies can achieve economies of scale, leading to lower average costs.
• Technological Development: Protection can provide a period of time for the infant industry to adopt and adapt new technologies, improving efficiency and product quality.
• Job Creation: Protecting domestic production can lead to the creation of jobs within the protected industry.
• National Security: In some cases, protecting an infant industry might be seen as crucial for national security, ensuring domestic production of essential goods.

Types of Trade Restrictions Used to Protect Infant Industries

Governments can use several tools to protect infant industries:

• Tariffs: Taxes imposed on imported goods. This makes imported goods more expensive, making the domestic industry more competitive.
• Quotas: Limits on the quantity of a good that can be imported. This restricts the amount of foreign competition.
• Subsidies: Government financial assistance to domestic industries. This reduces the cost of production for the infant industry.
• Import Licenses: Requiring permission from the government to import goods. This can limit the availability of foreign products.

The Potential Drawbacks of Protecting Infant Industries

While the concept of protecting infant industries has merit, it also has potential drawbacks:

• Higher Prices for Consumers: Tariffs and quotas increase the cost of imported goods, leading to higher prices for consumers.
• Reduced Consumer Choice: Trade restrictions limit the availability of a wider variety of goods for consumers.
• Inefficiency: Protection can shield inefficient industries from competition, hindering their drive to improve and innovate.
• Retaliation: Trade restrictions can provoke retaliatory measures from other countries, leading to trade wars.
• Rent-Seeking Behaviour: Industries benefiting from protection may lobby for continued protection, diverting resources from more productive activities.

Table Summarizing the Arguments

Argument For	Argument Against
Allows new industries to develop and become competitive.	Higher prices for consumers.
Enables economies of scale and technological development.	Reduced consumer choice.
Creates jobs within the protected industry.	Can lead to inefficiency and hinder innovation.
May be important for national security.	Risk of retaliation from other countries.
Provides a period of time to adapt to new technologies.	Can encourage rent-seeking behaviour.

In conclusion, the decision to protect infant industries is a complex one with potential benefits and drawbacks. Governments must carefully weigh these factors when considering trade restrictions.