Tuesday, December 20, 2011

Can someone explain further and again enlighten me on the fallacious argument for trade protection?

The infant industry argument rests on the umption that there are certain industries for which the future value to a nation is so great that it justifies distorting resources allocations to get there. This argument used to be made about basic industries like oil or steel -- i.e. that without a domestic industry you could be cut off from even minimal supply in the future. Therefore no cost was too great. In an era where capital and goods didn't move very freely, there was some validity to that argument. In today's environment it is simply not true. The people behind trade protection really have other non-economic agendas and hide behind these arguments for justification. After all, it isn't nearly as convincing to say that the reason you want to erect tariffs around an industry is to insulate your political friends from competition.

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