Infant industries are nascent industries in an economy, which many argue require protection and nurturing during their early stages, as does an infant, until they are strong enough to compete in the open market. Infant industries face a unique set of problems in competing with more mature and established rival firms. Experts often discuss the infant industry argument in the context of free trade agreements with developing nations.

Workers in infant industries face challenges related to their knowledge of the industry they have just entered. Mature competitors may have trade secrets that allow them to get quality results quickly. The infant industries argue that they need protection in order to afford to make the necessary improvements to be competitive. Nascent industries may also lack a workforce with sufficient industry knowledge or training to compete effectively against more mature competitors.

In other cases, the problem may not be related to knowledge but to infrastructure present in the country to support new industrial activities. Similarly, the climate and geography of a country may have benefits that give certain industries a comparative advantage over competitors from other countries. For example, Ecuador has inherent qualities that make the banana industry there quite productive.

The primary challenge that new competitors face compared to established firms is one of economies of scale. New rivals simply don't have the capital that established competitors are able to leverage in order to reduce per-unit costs for their products. When mature firms bring products to market at much lower prices than a new firm possibly could, it becomes nearly impossible for the new firms to establish a base of customers to generate the revenue needed to begin to compete.

The early history of the United States exhibits several examples of infant industries facing these sorts of problems. Some economic historians argue that the American Revolution occurred largely as a rejection of England's free trade policies. Colonists wanted independence in order to enact measures to protect their agricultural and textile industries against a flood of products imported from textile mills in England. Protectionist policies in the U.S. continued through the 19th century.

The semiconductor industry in Japan provides a more recent example of protection of infant industries by industrial nations. Through the 1950s and 1960s, the Japanese government had policies in place to support the country's infant semiconductor industry. By the 1970s, the semiconductor industry in Japan had become a serious rival to that of the U.S.

Proponents of the infant industry argument point out that every modern industrial economy developed behind protective trade barriers. The opposing school of thought argues that protectionism, especially through imposition of tariffs, is harmful to society at large and to the industry it attempts to protect. Experts usually discuss infant industries in terms of this protection, including what form protection should take and whether more or less protection would benefit the industry.

  1. What regulations exist to protect infant industries?

    Read about the history of infant industry protections in the United States, which are remnants of an old, protectionist trade ... Read Answer >>
  2. What industries are typically considered infant industries?

    Learn about infant industries and some of the challenges they face. Find out how the federal government tries to help some ... Read Answer >>
  3. What are the key barriers to entry for companies in the electronics sector?

    Learn how the entry barriers of economies of scale and scope, research and development, capital and brand loyalty affect ... Read Answer >>
  4. What impact does industrialization have on wages?

    Discover the impact that industrialization has on wages, and how the Industrial Revolution changed human standards of living ... Read Answer >>
  5. Is industrialization good for the economy?

    Find out why industrialization can be considered the most important economic transition in history, dramatically increasing ... Read Answer >>
  6. How is comparative advantage used as a justification for free trade policies?

    See why comparative advantage leads to the advocacy of free trade policies between international actors and why rent-seeking ... Read Answer >>
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