Infant Industry Argument Definition Example How It Works

Infant Industry Argument Definition

Example of the Infant Industry Argument

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An example of how this argument can be implemented includes:

Imposing tariffs on importsProviding subsidies to infant industriesImposing quota limitations on importsQuota Limitations On ImportsImport quotas are a type of government-imposed restriction on the trading of a certain commodity. Such restrictions are either fixed in terms of the value or quantity of the product to be imported during a given time period (usually for one year). The government imposes such restrictions in order to benefit local producers.read more

Infant Industry Argument and Economic Growth

It is said that generally protecting the new industries following the concept of infant industry argument results in a negative impact on economic growth. On the other hand, removing such practices that act as a barrier to free trade helps the economy grow. The countries that follow the argument have to face a negative effect on their economy’s growth rate.

What Protects an Infant Industry?

Several measures can be taken to protect the new industries.

Tariffs on Imports – This is one of the most common methods adopted by various countries. Tariffs are imposed on imports and are charged either per unit basis or as a percentage of the import value.Quotas on Imports – A restriction is placed on the quantum of the units of a particular good that can be imported into the country during a particular time.Grant of Subsidies – New industries can also be protected by granting subsidies to them. The subsidy payment can be made either on a unit basis or as a percentage of the value of the goods produced. It helps the industries in the reduction of their overall cost directly.

Criticism

The practice of the infant industry argument is being criticized because the new industries to whom protection is provided become inefficient since they do not face competition from the foreign markets. Also, such protections are difficult to take back once imposed, which is not a good thing.

Advantages of Infant Industry Argument

The country’s domestic market is protected from any outside competition and thus grows.It helps the economy gain self-dependence in production and reduces its reliance on foreign markets.When the new industries are protected, and grow, they bring new employment opportunities in place.The argument also helps the economy so that domestic consumption of the goods boost.

Disadvantages of Infant Industry Argument

The industries provided with protection tend to become inefficient since they do not face much competition.Imposing restrictions on imports from foreign countries can impact trade and business relations with such countries.It sometimes happens that the products of domestic markets are costlier than the same products available at less cost in the foreign market. This results in cutting the pockets of the customers.

Conclusion

The developing countries follow the infant industry argument to nurture and protect the domestic industries in their initial stages. The economies should always find other alternatives to protect the industries since this practice negatively impacts economic growth.