What is the infant industry argument? Discuss its effect on competition.
Infant industry argument refers to an argument in favor of protecting the domestic industries through government backing, help, and intervention. This argumentation is not a static but is highly dynamic in nature because it doesn’t say that the protectionist attitude of the government over its domestic industries would remain only for a limited period of time and would cease to exist after that period. After completion of this protectionist regime or protectionism, the government would allow its industries to be subjected to international competition to fend for itself.
Since, in term of competition infant-industry theorists argue that industries in developing sectors of the economy need to be protected to keep international competitors from damaging or destroying the domestic infant industry. In response to these arguments, governments may enact import duties, tariffs, quotas and exchange rate controls to prevent international competitors from matching or beating the prices of an infant industry, thereby giving the infant industry time to develop and stabilize. Infant-industry theory holds that once the emerging industry is stable enough to compete internationally, any protective measures introduced, such as tariffs, are intended to be removed. In practice, this is not always the case because the various protections that were imposed may be difficult to remove.