In economics, an infant industry is a new industry, which in its early stages experiences relative difficulty or is absolutely incapable in competing with established

competitors Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indivi ...

abroad. Governments are sometimes urged to support the development of infant industries, protecting home industries in their early stages, usually through

subsidies A subsidy or government incentive is a form of financial aid or support extended to an economic sector (business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from the government, the ter ...

tariffs A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and po ...

. Subsidies may be indirect, as in when import duties are imposed or some prohibition against the import of a raw or finished material is imposed. Economists argue that state support for infant industries is justified only if there are external benefits. That is underscored by the fact that the original bastions of the infant industry argument argued that external benefits aside, it is undeniable that both the US and Britain rose to become relative superpowers in economic terms by following their approach for an extended period of time. Britain was one of the first nations to pursue such an approach in their early development with regard to their raw wool industry. Among other measures, the nation ensured that competition was not allowed to import into their market especially when the destined goods were of superior quality. After about 100 years of

protectionism Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulation ...

of this wool industry, the country finally decided that duties on exports would be lifted. As for the US, in 1789 one of the first acts of the

US Congress The United States Congress is the legislature of the federal government of the United States. It is bicameral, composed of a lower body, the House of Representatives, and an upper body, the Senate. It meets in the U.S. Capitol in Washin ...

was to impose tariffs on a variety of imports including cotton, leather, and various forms of clothing, in an effort to protect the American

textile industry The textile industry is primarily concerned with the design, production and distribution of yarn, textile, cloth and clothing. The raw material may be Natural material, natural, or synthetic using products of the chemical industry. Industry p ...

. Many mistakenly credit

Friedrich List Georg Friedrich List (6 August 1789 – 30 November 1846) was a German-American economist who developed the "National System" of political economy. He was a forefather of the German historical school of economics, and argued for the German Custom ...

as the first individual to propose or set out an infant industry argument for the United States. Actually, it was

Alexander Hamilton Alexander Hamilton (January 11, 1755 or 1757July 12, 1804) was an American military officer, statesman, and Founding Father who served as the first United States secretary of the treasury from 1789 to 1795. Born out of wedlock in Charle ...

, the first Secretary of the Treasury who was the pioneer of the infant industry argument. Although List eventually accepted this argument, it did not come until his exile from the US. For further detail one should refer to the Reports of the Secretary of the Treasury on the Subject of Manufacturers (1791) regarding infant industries. Basically, his arguments dictated that new or "infant" industries in the US could not become competitive with others in the international market unless the government offered them subsidies or allowances (often called bounties previously) at least for some initial time period. Hamilton specifically suggested that this aid could likewise be offered by stamping out competition through import duties or, in an extreme case, the banning of imported products of that type completely. What began with Hamilton and was carried forward with others continued when Abraham Lincoln came into power in the US. Following the North's victory in the

American Civil War The American Civil War (April 12, 1861 – May 26, 1865; also known by Names of the American Civil War, other names) was a civil war in the United States. It was fought between the Union (American Civil War), Union ("the North") and t ...

, the US became the top follower of this approach until at least the time of

World War I World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was List of wars and anthropogenic disasters by death toll, one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, ...

and, to a great extent, until

World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the World War II by country, vast majority of the world's countries—including all of the great power ...

References

{{Reflist Industrialisation Protectionism

See also

References