Asked by Saatvic Arora on May 18, 2024

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Which is a valid counterargument to the infant industry argument for protective tariffs?

A) Protective tariffs result in too many benefits for domestic firms that export goods and services.
B) It is difficult to determine which infant industries will become mature industries with a comparative advantage.
C) The objective would be better achieved through strategic trade policy.
D) The objective would be better achieved by import quotas and nontariff barriers.

Infant Industry

An industry in its early stages of development, which may be protected by the government from international competition temporarily until it becomes competitive.

Protective Tariffs

Import taxes imposed by a country on foreign goods to protect domestic industries from competition by making imported goods more expensive.

Comparative Advantage

The capacity of an entity to generate a product or service with a lesser opportunity cost compared to others.

  • Scrutinize the historical and current enactment of tariffs, quotas, and various protective strategies, and their implications for international trade.
  • Investigate the economic justifications for adopting protectionist policies as well as the arguments against them, specifically in relation to supporting budding industries and safeguarding jobs at home.
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JS
Julia SmerlingMay 21, 2024
Final Answer :
B
Explanation :
B) The infant industry argument suggests that new industries may initially struggle to compete against established foreign competitors and thus require protection (e.g., through tariffs) until they become competitive. A valid counterargument is that it's challenging to predict which new industries will indeed grow to be competitive and benefit from such protection. This uncertainty can lead to misallocation of resources or protection of industries that would never become globally competitive, regardless of the temporary protection they receive.