Question

Describe the COUNTER ARGUMENTS to the national security, declining industries, and infant industry arguments for protecting a domestic industry from international competition.

Answer 1

The principle of the infant industry, a classic concept of international trade, notes that new industries need protection from international competitors until they become established, sustainable and competitive. The claim of the infant industry is widely used to justify protectionism in domestic trade. An infant industry is an economic term used to describe an industry in its early stages of development. In other words, a newly established industry is an infant industry. Infant industries therefore lack the experience and scale to compete against existing rivals abroad effectively.

The main reason behind the claim of the infant industry is that new industries need support because they lack the economies of scale that rivals have. Infant factories lack the capacity to exploit their current production and require protection until they can achieve comparable economies of scale In addition, there are several other factors behind the claim of the infant industry: promoting and stimulating domestic production Promoting national security and increasing reliance on out - of-country production.

It is possible to protect an infant industry by implementing a domestic production subsidy. A production subsidy is a payment made to producers by the government; the government subsidizes production. Compared to tariffs, subsidies for output can be either (1) a fixed dollar subsidy for each unit produced or (2) a percentage subsidy on the cost of the good produced.The imposition of a quota on imports can protect an infant industry. A quota is a limit on the number of goods that can be imported over a specific period of time.