One of the most notable arguments in favor of protection is the nascent industry, an industry, mainly in a developing country, that cannot compete in international markets in free trade, but which, if given time to learn and grow, could be effective world-class. Argument. The argument claims that the protection of small new enterprises, especially in less developed countries, is justified. New companies are unlikely to compete with companies established in developed countries. Companies in industrialized countries have been in business for some time and have been able to improve their production efficiency over time. They have better information and knowledge about the production process, market characteristics, their own labour market, etc. As a result, they are able to offer their product in international markets at a lower price while remaining profitable. The young industry`s argument is that developing countries have the right to impose tariffs on imports as they seek to develop new industries and diversify their economies. In particular, it is justified to impose tariffs on industries in which a country has a latent comparative advantage. That is, if they can develop infrastructure and economies of scale, they have a comparative advantage The static effects (once) on welfare of the tariff deduction and increased efficiency are summarized in Table 9.7 “Static effects of tariff reduction and increased efficiency on welfare”. Note that these effects are calculated in relation to the initial equilibrium before the introduction of the initial rate.
We do this because we want to identify the welfare effects at each period in relation to what would have happened if the protection of the nascent industry had not been ensured. The theory of the young industry is that once the emerging industry is stable enough to compete internationally, all protective measures introduced, such as tariffs, should be eliminated. In practice, this is not always the case, as the various protective measures that have been imposed can be difficult to eliminate. Ha-Joon Chan, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (2008), makes similar arguments, updates the arguments on free trade, and argues that there has been a similar situation with developed countries that are more interested in promoting free trade agreements once they have benefited from protectionism. Chan argues that developed countries “often want to move down the ladder they used to develop” and argues that developing countries have the right to promote tariffs to develop new industries that offer long-term growth. Please, I need the pros and cons of the information problems of young industries. For the protection of young industries to work, it is important that governments have reliable information about the industries in their economies. You need to know which industries have strong production-related learning effects and which industries are most likely to have learning spin-offs on other industries. It would also be useful to know the magnitude of the effects as well as the timing. But governments must decide not only which industries to protect, but also how much protective tariffs should be and over what period of time tariffs should be reduced and eliminated.
If the government sets the tariff too low, protection cannot be sufficient to produce much of the country`s production. If the tariff is set too high, the costs of the tariff could outweigh the long-term efficiency gains. If the tariff is collected for too long, companies may not have enough incentive to make the necessary changes to improve efficiency. If set for too short a period of time, businesses may not learn enough to compete with the rest of the world once tariffs are lifted. Youth industry theorists argue that industries in developing economic sectors must be protected to prevent international competitors from harming or destroying the domestic juvenile animal industry. Young industries, they argue, do not have the economies of scale that older competitors in other countries might have and should only be protected until they have built an economy of similar magnitude. There are several criticisms of the young industry argument: young industry refers to sectors that are still at an early stage in the industry`s life cycle. Because it is still new, the industry needs time to mature. A young industry is a term used in economics to describe an industry that is at an early stage of development. In other words, a young industry is a newly founded industry.
As a result, young industries do not have the experience or size to compete effectively with their competitors abroad. A young industry is characterised by a lack of efficiency and competitiveness Intensity of competitionThe intensity of competition can be defined as the extent to which firms exert pressure on each other within a given industry. A certain degree of competition and a high susceptibility to sudden changes in the market. What it is: The young industry`s argument is an economic justification for the need for trade protectionism. The idea behind this argument is that the new industry is vulnerable to competition. It must be protected from international competitors until they are mature, stable and more competitive. As I said earlier, the main reason for the young industry argument is to protect new strategic industries. However, the implementation of protective measures has deeper implications. And this can be an indirect reason for protection. Some of the benefits of protecting young industry include: The solution proposed by the young industry argument is to protect domestic industries from foreign competition in order to create positive learning and ripple effects. Protection would stimulate domestic production and further promote these positive effects.
As efficiency improves and other industries develop, economic growth is stimulated. Thus, by protecting young industries, a government could enable faster economic growth and a much faster improvement in the country`s standard of living compared to specialization in the country`s static comparative assets. Let`s take another example. The government protects the e-commerce industry. Its development affects not only retail trade, but also other industries such as manufacturing and logistics. As e-commerce develops, it will undoubtedly have a greater impact on job creation and increasing people`s incomes. The argument of young industry, a classic theory in international tradeGlobalization Globalization is the unification and interaction of individuals, governments, companies and countries of the world. States have found that new industries need to be protected by their international competitors until they become mature, stable and able to compete. The young industry argument is often used to justify protectionism in internal trade.
Imagine a country that traditionally imports cars from abroad and has no domestic production of cars. The creation of a national automotive industry would be an example of a young industry. 3. Political Interest Group. Once the industry has become accustomed to customs protection, it can become politically difficult to eliminate it on the basis of its own interest. Developing countries are following the young industry argument to promote and protect domestic industries that are in their infancy. Economies should always try to find other alternatives, including to protect industries, as this practice has a negative impact on economic growth. The young industry argument is an important justification for tariffs at certain stages of economic development.
The practice of following the argument of the young industry is criticised on the grounds that new protected industries become inefficient due to the fact that they are not exposed to competition from foreign markets. Moreover, once imposed, such protective measures are difficult to reverse, which is not a good thing. Thus, a major problem in the application of young industry protection is that the protection itself can eliminate the need for companies to grow. Without subsequent efficiency gains, protection as a whole would only entail costs to the economy. Failed import substitution strategies. A popular development strategy in the 1950s and 1960s was known as import substitution. Essentially, this strategy is just an application of the young industry argument. However, many of the countries that have pursued this type of inward-looking strategy, particularly those in Latin America and Africa, have performed much worse economically than many Asian countries. .