CFA Level I · CFA Level I Exam · International Trade
A government imposes temporary tariffs on imports of a developing domestic manufacturing sector, stating that the sector will become globally competitive once it achieves economies of scale. This argument for trade protection is best described as the:
This is the infant industry argument. It holds that a young domestic industry needs temporary protection, such as tariffs, until it gains economies of scale and experience, after which it can compete with established foreign producers without support.
- Ainfant industry argumentCorrect
- Bnational security argument
- Cdumping argument
Explanation
Protecting a young domestic industry until it grows large enough to compete internationally is the infant industry argument. The national security argument concerns strategic goods, and the dumping argument concerns foreign firms selling below cost.
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