therefore be careful before offering protection to infant industries because
they must recognize the political difficulties involved in removing that
protection in the future. The countries that were most successful in
having their protected industries eventually grow up and succeed in fierce
international competition were those, such as Taiwan and South Korea,
that ruthlessly withdrew support from unsuccessful infants within a
specified time period.
Earning Economic Profits in Foreign Markets
Another argument for protectionist policies is to help create an advantage
in producing or marketing some product that is expected to generate
economic profits through its sales to foreign consumers. If protection of
the domestic market, which might include subsidizing domestic firms, can
increase the chance that one of the domestic firms will become
established and thus earn high profits, the protection may pay off. The
economic profits earned in foreign markets may exceed the cost to
domestic taxpayers of the protection. This is the general idea of strategic
trade policy.
Opponents of strategic trade policy argue that it is nothing more than a
modern version of age-old and faulty justifications for tariff protection.
Once all countries try to be strategic, they will all waste vast sums trying
to break into industries in which there is no room for most of them.
Domestic consumers would benefit most, they say, if their governments
let other countries engage in this game. Consumers could then buy the
cheap, subsidized foreign products and export traditional non-subsidized