The Case for Protecting Infant Industries

I must say, it’s been almost breathtaking to see how fast the acceptable terms of debate have shifted on the subject of trade. Thanks partly to President-elect Donald Trump’s populism and partly to academic research showing that the costs of free trade could be higher than anyone predicted, economics commentators are now happy to lambaste the entire idea of trade. I don’t want to do that -- I think a nuanced middle ground is best. But I do think it’s worth reevaluating one idea that the era of economic dogmatism had seemingly consigned to the junk pile -- the notion of infant-industry protectionism.

This idea is usually applied to developing countries. Poor nations, the argument goes, benefit from having high-tech, high-value industries that produce positive spillovers -- local supply chains, an expert workforce, innovative ideas. But because poor countries have little capital, their high-tech industries can’t compete with huge multinational behemoths. So it makes sense to shield these young, promising companies behind protectionist walls for a while, letting them play in the sandbox of the domestic market until they gain the size and know-how to go out and compete in the world.
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