Question

What are main reasons for protecting "infant industries"? Why is it difficult to stop protecting them?

Short answer

The main reasons for protecting infant industries include promoting economic diversification, fostering domestic innovation, ensuring national security and self-sufficiency, and balancing trade deficits. However, it can be difficult to stop protecting them due to factors such as political pressure, job loss fears, lobbying by established firms, sunk costs, and international trade obligations.

Step-by-step solution

Define Infant Industries

Infant industries are new and emerging industries that have the potential to grow but currently lack the resources, experience, and economies of scale to compete effectively with established firms and industries in the global market. These industries often face fierce competition and may be at a disadvantage compared to well-established, foreign competitors.

Reasons for Protecting Infant Industries

There are several reasons why governments might choose to protect infant industries. 1. Economic Diversification: Protection of infant industries can help promote economic diversification, create new job opportunities, and reduce the country's reliance on a few specific sectors or resources. 2. Fostering Domestic Innovation: Infant industries hold the potential for technological advancements, making it crucial for governments to protect them. This nurtures a supportive environment for domestic firms to innovate and become successful global competitors. 3. National Security and Self-Sufficiency: Infant industries may hold strategic importance in terms of national security or self-sufficiency. By protecting these industries, governments can ensure that their country has reliable access to essential goods or services, even during times of crisis. 4. Balancing Trade Deficits: Governments may protect infant industries strategically to reduce trade deficits by promoting domestic production and reducing the reliance on imports.

Difficulties in Stopping Protection of Infant Industries

There are several reasons why it can be challenging to stop protecting infant industries: 1. Political Pressure: Once established, infant industries may wield substantial political influence, making it difficult for governments to withdraw protection without facing significant backlash. 2. Job Loss Fear: Removing protection could result in job losses in the industry, generating economic and social problems and negative public sentiment. 3. Lobbying by Established Firms: Established firms within protected industries may lobby heavily against removing support measures, making it difficult for governments to take any action. 4. Sunk Costs: Governments may have already invested substantial resources in the protected industries, making it difficult to justify removing protections without seeing returns on those investments. 5. International Trade Obligations: Removing protectionist measures may lead to trade disputes with other countries if these measures are seen as contravening international trade agreements. This could make it difficult for governments to end protection without generating negative consequences for the country as a whole. In conclusion, protecting infant industries can provide several benefits, including economic diversification, fostering innovation, and promoting self-sufficiency. However, it can also be difficult to stop protecting them due to political pressure, fears of job loss, and other factors. Understanding these reasons and challenges can help policymakers make more informed decisions when it comes to protecting and supporting domestic industries.