Economic Arguments For Intervention The Infant Industry Argument Strategic Trade Policy

The Infant Industry Argument

Justification: Developing countries have a potential comparative advantage in manufacturing but new manufacturing companies cannot initially compete with established industries in developed countries. In order to attain a similar level of economies of scale; supporters of this argument argue that the government must temporarily support these industries. Assumption: Inability of firms to make long term investments by borrowing from domestic or international capital markets.

Government Intervention in Cleantech Industry

US Cleantech Industry facing stiff competition from Chinese Competitors. Chinese government commits 100bn in development of green technology per year. In the wake of these developments US government provided domestic Cleantech companies various incentives such as tax breaks. And have increased import tarrifs on solar panels.

Counter Arguments
Protection considered redundant unless higher efficiency is attained. In light of the development of global capital markets the assumption of this argument is no longer valid.

Strategic Trade Policy

Strategic Trade Policy Gain First Mover Advantage Combat and Overcome the barriers to entry

Counter Arguments
Beggar Thy Neighbor policy Could result in retaliation and consequently a Trade War Many Strategic Trade policies influenced by Politically important groups .

Why are the taxpayers not able to generate enough political pressure to counter the imposition of trade barriers?

The gain per person on free trade is usually lower than the loss per person. Governments tap nationalistic sentiments while employing these theories. Existence of powerful lobbyists.

Political Argument for Intervention

National Security Countries often argue that it is necessary to protect certain industries because they are important for national security. This Primarily involves Defense related industries.

The Indian Defense Industry and Policy towards Privacy.

Ranked 7th worldwide in defense expenditure Indias defense industrial base remains centered on nine state-owned enterprises: a total of eight companies and a board comprising of 39 factories. Modernization considered to be lagging behind by upto 10 years. Plagued by rampant corruption.

Current Make up of Indian Armed Forces Base

State of the Art Mature Obsolete

15%

50%

35%