infant industry

Definition
New industry in its early stages of development, and in need of protection from predatory competition through tariff and non-tariff barriers until it is established.

An infant industry is a new industry, which in its early stages experiences relative difficulty or is absolutely incapable in competing with established competitors abroad. Governments are sometimes urged to support the development of infant industries - that is protect home industries in their early stages - usually through subsidies or tariffs.[2] Subsidies may be indirect as in when import duties are imposed or some prohibition against the import of a raw or finished material is imposed. One of the first acts of the US Congress was to impose tariffs on a variety of imports including cotton, leather, and various forms of clothing, in an effort to protect the American textile industry. Economists argue that state support for infant industries is only justified if there are external benefits. This is underscored by the fact that the original bastions of the infant industry argument argued that external benefits aside, it is undeniable that both the USA and Britain rose to become relative superpowers in economic terms by following their approach for an extended period of time. Britain was one of the first nations to pursue such an approach in their early development with regard to their raw wool industry. Among other measures, the nation ensured that competition was not allowed to import into their market especially when the destined goods were of superior quality. After about 100 years of protectionism of this wool industry, the country finally decided that duties on exports would be lifted. Although the idea largely is lacking in modern literature, the United States too has this approach to credit for much of their rise of economic development. Many mistakenly credit Friedrich List as the first individual to propose or set out an infant industry argument for the USA. Actually, it was Alexandar Hamilton, the first Secretary of the Treasury who was the pioneer of the infant industry argument. Although List eventually accepted this argument, this did not come until his exile from the USA. For further detail one should refer to the Reports of the Secretary of the Treasury on the Subject of Manufacturers (1791) regarding infant industries. Basically his arguments dictated that new or "infant" industries in the US could not become competitive with others in the international market unless the government offered them subsidies or allowances (often called bounties previously) at least for some initial time period. Hamilton specifically suggested that this aid could likewise be offered by stamping out competition through import duties or in an extreme case the banning of imported products of that type completely.

What began with Hamilton and was carried forward with others continued when Abraham Lincoln came into power in the USA. Following the North's victory in the Civil War, the USA became the top follower of this approach until at least the time of WWI, and to a great extent until WWII.