CA Foundation · Business Economics · International Trade
Which of the following is the usual argument for an 'infant industry' tariff?
The infant industry argument holds that a new domestic industry needs temporary tariff protection from established foreign competitors so it can build scale, learn and lower costs. Once it becomes competitive, the protection should be withdrawn.
- ATemporary protection lets a new domestic industry grow and become competitiveCorrect
- BPermanent protection of declining industries to preserve jobs
- CRaising prices of imports to improve consumer welfare
- DEncouraging exports by paying subsidies to foreign buyers
Explanation
The infant industry argument says a new industry with high initial costs needs temporary protection until it achieves economies of scale and can compete globally. Permanent protection of declining industries is a different argument. Tariffs generally raise prices and do not subsidise foreign buyers.
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