Saturday, November 30, 2013

Infant Industries do not necesssitate protection

I am not all too sure how I feel about the infant industry argument for protectionism. For the most part, I disagree with the claim that a budding country necessitates trade barriers and tariffs in order to grow. If a country has the ability to profitably produce a good or service, then I would hope that doing so could be done simply through development and trial and error. The country’s comparative advantage will indeed emerge with time and effort, and any initial losses will be either made up for through profits or regarded as essential steps towards later prosperity. I do not feel as though protecting the infant industries will induce any sort of destined growth, nor do I recognize losses at the start of an industry as a beacon for tariffs that will help recover those losses. On the other hand, I do see some merit in the logic or the infant industry protectionism. How can an industry be incentivized to sprout up if losses are to be expected? (By extending the view farther into the future.) Why would an industry put in the work to hammer out efficient processes when others will just free-ride off of their discoveries? (Because there will generally be competition in most industries, and a market equilibrium will arise eventually regardless of when the free-riders came about.) Don’t tariffs provide a bumper for infant industries to fail and then succeed? (Yes, but they may also foster a false or misplaced sense of having a comparative advantage.) In general, I would like to think that the world and its systems tend to work themselves out. As a result, I say “boo” to protectionist policies as they are for the weak and those who are unfit to succeed on their own.

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