A Re-examination of the Infant Industry Argument for Protection

Though a logically tight case for infant industry protection has never been made, proprotection authors have claimed its truth since at least its statement by Alexander Hamilton in 1791. In the 1970s and the 1980s, the argument had receded into the background following its influential critiques by trade economists James Meade, Harry Johnson and Robert Baldwin. But globalisation critics have recently revived it giving it new guises. This requires a fresh response from pro-free trade economists so that the fog is removed yet again and clear thinking restored. Accordingly, in this paper, I revisit the argument and its logical flaws. I demonstrate that the new packaging provided by proprotection authors cannot hide the fundamental logical flaws in the argument. Nor is there compelling evidence of successful infant industry promotion once the costs and benefits are both taken into account instead of just the benefits. The argument is often pegged on externalities. But once the precise source of the externality is pinned down, protection as an instrument to correct it turns out to be ineffective.