The infant-industry theory states that new industries in developing countries need protection against competitive pressures until they mature and develop economies of scale that can rival their competitors ‘.
Why is it important to protect infant industries?
To encourage and stimulate domestic production . To promote national security and reduce reliance on production from abroad. To be a source of government revenue once the infant industry reaches maturity. To attract foreign investment.
Should infant industries be protected?
The infant industry argument is an economic rationale for trade protectionism. The core of the argument is that nascent industries often do not have the economies of scale that their older competitors from other countries may have, and thus need to be protected until they can attain similar economies of scale.
What are main reasons for protecting infant industries Why is it difficult to stop protecting them?
Why is it difficult to stop protecting them? Infant industry agreement need the time for maturity before competition by blocking import for some time . The blocking of the import is important so that the infant firm advances in equal terms for the global market.
How infant industry is protected in WTO?
The “infant industry” clause of the WTO permits developing countries to deviate temporarily from their obligations in order to promote the establishment of a new industry by, for example, raising a bound tariff rate or imposing an import restriction on the goods which the new industry will be or is producing.
What is protecting infant industries?
What Is the Infant-Industry Theory? The infant-industry theory states that new industries in developing countries need protection against competitive pressures until they mature and develop economies of scale that can rival their competitors ‘.
How does the government protect infant industries?
A government planner can protect the infant industry using domestic production subsidies, tariffs, or quotas in order to maximize domestic welfare over time. ... Given such restrictions, the paper shows that quotas induce higher welfare levels than tariffs.
Do protected industries become efficient over time?
Over time, the new industries will become more efficient and benefit from economies of scale . At this time the tariffs can then be reduced. Furthermore, it is argued many developed economies had a period of tariff protection, e.g. Great Britain, US, Germany and, in recent times, South East Asian economies.
What is the unfair competition argument?
One of the strongest arguments for some degree of trade protectionism is the tendency for unfair competition to emerge , particularly in developing markets without the infrastructure to monitor their businesses and enforce penalties. This is called the unfair competition argument.
Why is it difficult to stop protecting an industry?
But once started, it becomes difficult for government to stop protectionism because many times protection leads to dependency of industry on support and industry needs support till it becomes obsolete without becoming mature itself .
Which countries are most directly affected by Nafta?
THE EFFECTS OF NAFTA
Trade has grown sharply between the three nations who are parties to NAFTA but that increase of trade activity has resulted in rising trade deficits for the U.S. with both Canada and Mexico -;the U.S. imports more from Mexico and Canada than it exports to these trading partners.
What are the infant industry and dumping arguments for protection are they correct?
the infant industry and the dumping arguments for protection are not correct . protection does not save jobs. free trade cost some jobs, but it also creates other jobs. it brings about a global rationalization of labor and allocates labor resources to their highest valued activities.
What do free traders say would happen if inefficient industries are protected?
What do Free Traders want? ... What do Free Traders say would happen if inefficient industries are protected? it would waste resources . What is the Trade-Weighted Value of the Dollar and how is it related to the FED?
What is the infant industry argument quizlet?
What is meant by the infant industry argument? The blocking of imports for a short time, to give the affected industry time to mature, before eventually it starts competing on equal terms in the global economy .
What is strategic industry argument?
1. What is meant by the strategic-industry argument? ... – A country should protect its strategic industries from foreign competition . -It is to a country’s benefit to buy strategic products as cheaply as possible. -A country should assist newer industries which are not yet mature enough to compete with foreign industries.
What is the main purpose of GATT?
The General Agreement on Tariffs and Trade (GATT) was signed by 23 countries in October 1947, after World War II, and became law on Jan. 1, 1948. The purpose of the General Agreement on Tariffs and Trade (GATT) was to make international trade easier .
