New Industries and Trade

Infant industries are those industries which are new to a particular country. Thus the software industry in India is an infant industry since, although a mature industry in the United States and Western Europe, it is new to India. Steel can also be an infant industry depending on the extent to which it is established in a given country. In fact, any industry can be an infant industry if it is new to an economy (Suranovic, 1999, p.�1).

Government intervention can take the form of regulations requiring a certain percentage of domestic participation in companies owned by foreign companies, or otherwise restricting ownership. A number of countries participate in this type of protectionism, including Mexico. But government intervention extends well beyond merely requiring domestic participation in foreign operations (Harling, 1994, 260).

One of the most common intervention strategies is the imposition of tariffs on imported goods. These are fees that are charged on specific products entering a market that go to the government. The goal behind tariffs is to increase the price of goods entering the market so that the imported goods are priced at the same level or higher than domestically produced goods. In this way, companies cannot sell goods at artificially low prices in a foreign market merely to gain market share. If this were possible (and there are companies that continue this practice), domestic companies would be at risk; once the domestic competition is elimina

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inflates (or deflates) prices. If foreign companies are encouraged to participate in the domestic economy through favorable tax status, for example, that is most likely to the detriment of domestic companies located in different regions who do not have the same cost advantages. Quotas and tariffs may limit the amount of foreign goods which enter the country, but they reduce the number of goods available and increase the price of goods to domestic consumers. Government intervention in trade also requires that politicians assume the role of economists, and particularly talented economists. Since government intervention requires constant adjustment as the conditions of the market change, any type of government intrusion must be kept in place for a long period of time and continually refined and modified. In this way, trade policy becomes a matter of foreign policy, and the relationship between commerce and politics becomes blurred. Some analysts maintain that infant industries are a special case requiring government intervention because such industries do not yet have the maturity to compete effectively in the global market. According to these analysts, infant industries lack the economies of scale and efficiency of production

Category: Government - N