| The infant industry argument is used by countries as | | | | follows comparative advantage principles, the |
| an economic protectionist measure so that industries | | | | resources that are being used inefficiently in the |
| (primarily manufacturing) can be protected from | | | | protected industry would be distributed to efficient |
| other countries' industries that can produce goods or | | | | industries (what the nation-state does better than |
| services cheaper than the country enacting the | | | | other nation-states). |
| measure. The measure was first argued in the United | | | | Also, in today's global economic atmosphere, the cost |
| States by Alexander Hamilton, the country's first | | | | of labor as an input (dollars/hour wages) in western |
| Treasury secretary. Prior to the American Revolution, | | | | Europe and the United States is not the same as |
| Britain had discouraged its colonies from developing | | | | developing nations such as China or India. In the mid |
| their own industry so that Britain could benefit from | | | | to late 19th century, labor costs were comparable. |
| its own mercantilism. Additionally, strong tariffs would | | | | Therefore, presently only less developed countries |
| raise capital for the new republic. Friedrich List (1856) | | | | could ethically use this argument. Besides labor cost |
| used a similar argument in Germany to protect | | | | disparities, a country may have other resource inputs |
| Germany against British industries. John Stuart Mill | | | | that are naturally higher than the country that |
| eventually went on to formalize the argument in | | | | currently produces the good at a lower cost. Once |
| economic terms. | | | | the tariffs are lifted, these inputs have a normal |
| The infant industry argument promotes protectionist | | | | effect of making the product that is protected under |
| measures using tariffs (for a predetermined time) on | | | | the infant industry argument cost prohibitive in terms |
| imported goods of the same type as a particular | | | | of opportunity costs. Next, determining when the |
| industry in the host country that has just begun | | | | initial tariffs should be lifted becomes less an |
| producing those goods (hence the term infant). Since | | | | economic issue and more a political one for the |
| the industry is in its infancy, it has not had the | | | | country enacting the tariffs. |
| opportunity to gain a learning curve in its mass | | | | The infant industry argument presupposes that the |
| production. Therefore, the argument assumes two | | | | protective tariffs will be lifted when the industry is on |
| things. First, the argument assumes that the | | | | an even footing with other nation-states' industries |
| industry's leaders will gain a learning curve so that it | | | | and can meet domestic demand, as well as export |
| will be able to match the price of incoming goods | | | | these goods to other countries. When this "even |
| after a predetermined period of time. Second, inputs | | | | footing" occurs remains open to debate. Also, the |
| of the country using the infant industry argument | | | | infant industry argument presupposes that the |
| (labor, materials, etc.) are the same or near the same | | | | protected industry will continue to invest in the |
| as the other countries. Several flaws in modern-day | | | | industry to keep up with other nation-states in the |
| nation-state economic activity make the infant | | | | same industry. If the industry continually changes due |
| industry argument implausible, or at least unfair. | | | | to new investment, the protected industry may need |
| First, the World Trade Organization (WTO) and | | | | tariff protection for many years. |
| regional trade agreements have sought to lower | | | | Furthermore, the argument is less clear when other |
| tariffs to increase free trade. Therefore, a country | | | | entrants want to get into the industry after a few |
| that seeks to use an infant industry argument and is | | | | firms have been protected. Finally, it is ethically unfair |
| a participant in these organizations could face | | | | when trade does not occur naturally ("the invisible |
| retaliation by several countries and not just the | | | | hand") per Adam Smith. Related to comparative |
| country against which the first country enacted | | | | advantage and opportunity costs, resources and |
| protectionist tariffs. Next, the principles of | | | | manufacturing should naturally flow to nation-states |
| comparative advantage are violated. All things being | | | | that can produce products most cheaply. The |
| equal, it is not in a nationstate's best interest to | | | | consumer should work with normal cycles of supply |
| divert resources to an industry in which they have | | | | and demand to obtain a product at its equilibrium |
| less efficiency or opportunity costs. If a nation-state | | | | price. |