Most of the now industrialized countries developed their industries
initially under quite heavy tariff protection. (In Canada’s case, the
National Policy of 1876 established a high tariff wall behind which many
Canadian industries developed and thrived for many years.) Once the
industrial sector was well developed, these countries reduced their levels
of protection, thus moving a long way toward free trade. Electronics in
Taiwan, automobiles in Japan, commercial aircraft in Europe (specifically
the consortium of European governments that created Airbus), and
shipbuilding in South Korea are all examples in which protection of infant
industries was successful. In each case, the national industry, protected by
its home government, developed into a major player in the global
marketplace.
The Chinese economy, although now the world’s largest as measured by
real GDP, is still much less developed than those of Canada, the United
States, and Western Europe. China has tariffs that protect many of its
industries and help them compete in global markets. With the ongoing
rapid development of the Chinese economy, many economists wonder
when this trade protection will be reduced, at which point Chinese firms
will be forced to compete on a “level playing field” with firms from other
countries.
One practical problem with the infant industry argument for protection is
that some infants “never grow up.” Once the young firm gets used to
operating in a protected environment, it may resist having that protection
disappear, even though all economies of scale may have been achieved.
This problem is as much political as it is economic. Political leaders must