econ268 int economics week 9 -

8/11/2019 ECON268 Int Economics Week 9 -

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Problems with infant industry Protection

-the protection for the infant industry argument stipulates that once an emerging industry has

developed well enough to compete on an international level, tariffs and other such protective measures

are to be removed. However this may be difficult in practice once these are imposed.

-mature industries could possess a trade secret or patent and it is here infant industries say they cannotcompete without more revenue to research, extra revenue that is created through a tariff. The infant

industry argument therefore does not consider business loans which are available as a free market

solution.

-certain products will require a specific environment (ie agricultural goods) to succeed and it is here that

putting more business capital from barriers cannot solve the problem. Some nations also have more

advanced machinery and transportation processes to help increase efficiency and naturally there is no

incentive for the company to purchase this capital as it will undercut profits despite the help of tariffs.

-extra revenue attained through tariffs may not provide enough incentive for infant industries to train

their workforce. Foreign firms can pay for less by recruiting already skilled workers.

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.

Antidumping duties may be imposed if the export price is less that the price in the home market or (if

such a home price is not available) the highest price in any third market supplied or the costs ofproduction (including reasonable selling costs and profit).

Foreign firms can influence the amount of an anti-dumping duty by their own pricing policies. The

antidumping duty may be set to equalise prices in the exporters Home market with the export price, so

a firm may raise its export price if a duty is threatened. For a diagrammatic exposition, see FT Fig 9.9.

Safeguarding Tariffs

are emergency actions taken when any product is being imported ... in such quantities and under such

conditions as to cause or threaten serious injury to domestic producers (FT 241). Previously agreed

concessions for that product can be suspended in whole or part for such time as may be necessary to

prevent or remedy such injury. Such time may, in practice, be a long time.

Safeguard actions involve a determination that imports are the most important cause of serious injury.

They are typically used much less frequently than antidumping duties.

Countervailing duties


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can be imposed on subsidized imports to offset the injury to domestic producers ( DFAT )

econ268 int economics week 9 -

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