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Protectionism for infant industries always imposes costs on domestic users of the product, and typically has provided little benefit in the form of stronger, competitive industries. However, several countries in East Asia offer an exception. Japan, Korea, Thailand, and other countries in this region have sometimes provided a package of indirect and direct subsidies targeted at certain industries, including protection from foreign competition and government loans at interest rates below the market equilibrium. In Japan and Korea, for example, subsidies helped get their domestic steel and auto industries up and running.

Why did the infant industry policy of protectionism and other subsidies work fairly well in East Asia? A study by the World Bank in the early 1990s offered three guidelines to countries thinking about infant industry protection:

  1. Do not hand out protectionism and other subsidies to all industries, but focus on a few industries where your country has a realistic chance to be a world-class producer.
  2. Be very hesitant about using protectionism in areas like computers, where many other industries rely on having the best products available, because it is not useful to help one industry by imposing high costs on many other industries.
  3. Have clear guidelines for when the infant industry policy will end.

In Korea in the 1970s and 1980s, a common practice was to link protectionism and subsidies to export sales in global markets. If export sales rose, then the infant industry had succeeded and the protectionism could be phased out. If export sales did not rise, then the infant industry policy had failed and the protectionism could be phased out. Either way, the protectionism would be temporary.

Following these rules is easier said than done. Politics often intrudes, both in choosing which industries will receive the benefits of being treated as “infants” and when to phase out import restrictions and other subsidies. Also, if the government of a country wishes to impose costs on its citizens so that it can provide subsidies to a few key industries, it has many tools for doing so: direct government payments, loans, targeted tax reductions, government support of research and development of new technologies, and so on. In other words, protectionism is not the only or even the best way to support key industries.

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The anti-dumping argument

Dumping refers to selling goods below their cost of production. Anti-dumping laws block imports that are sold below the cost of production by imposing tariffs that increase the price of these imports to reflect their cost of production. Since dumping is not allowed under the rules of the World Trade Organization (WTO)    , nations that believe they are on the receiving end of dumped goods can file a complaint with the WTO. Anti-dumping complaints have risen in recent years, from about 100 cases per year in the late 1980s to about 200 new cases each year by the late 2000s. Note that dumping cases are countercyclical. During recessions, case filings increase. During economic booms, case filings go down. Individual countries have also frequently started their own anti-dumping investigations. The U.S. government has dozens of anti-dumping orders in place from past investigations. In 2009, for example, some U.S. imports that were under anti-dumping orders included pasta from Turkey, steel pipe fittings from Thailand, pressure-sensitive plastic tape from Italy, preserved mushrooms and lined paper products from India, and cut-to-length carbon steel and non-frozen apple juice concentrate from China.

Questions & Answers

if John was given $10, he would spend none of it on tuna fish.But when asked, he claims to be indifferent between receiving $10 worth of tuna and a $ 10 bill.How could this be?
oliva Reply
What is illustrates?
Anik Reply
things to do first as a manager when contacted to create a jewelry inventory system
Moses Reply
what is monopoly
Kadar Reply
in monopoly there in only one producer of the product and there in no substitute of that product in the market .The producer is price maker .
Devendra
mono means single and poly means seller. so a single seller controls the entire market of a particular product. He is the price maker..
premkumar
if x decreases and y decreases what slope is it
Elda Reply
what is duopoly
Femi Reply
it's a state where two people control over a market...
Okonkwo
great
jean-renel
why ppf is downward
Ahmad Reply
i didn't understand
Fatima
The PPF is downward because it shows the the unequal opportunity cost ratios existing in the allocation of resources in the production of two major goods/services in a given economy
Elvis
due to opportunity cost.
samson
this is because goods are sacrifice for the production of the other.
Avuwada
Weldon question and good answer . in my opinion when you allocate some more resources for production of one good among two.
Azizullah
any one what is the difference between need and want?
Azizullah
need is neccesory but want is temporary...
hemanth
any idea about green leadership
ghalib
trends in microeconomics
JOSEPH Reply
Worked out examples of calculating the elasticity of supply
Black Reply
briefly describe the term business cycle
Linda Reply
these are the different economic trends observed by an economy at a given time period. we have the slump,recession, recovery and boom
Betole
saran has decided always spend one 4th income on his clothes what is income elasticity of demand in hindi
Saba Reply
income elasticity is 4
Avuwada
what is diminishing returns?
diminishing returns states that as more variable in put is bing employed on a fixed factor marginal product increase attains maximum and falls certeris paribus.
Avuwada
The law of diminishing returns is the a phenomenon that happens when you gain less satisfaction or in another word less marginal utility when you keep on consuming the same thing over and over again. The more you have of something the less desirable it becomes .
sassia
My first post was about the law of diminishing marginal utility, it was meant for another post .
sassia
however to be precise the law of diminishing returns is used to refer to a point at which the level of profits or benefits gained is less than the amount of money or energy invested.
sassia
or you can refer to the text it is mentioned that: "the law of diminishing returns    , which holds that as additional increments of resources are added to a certain purpose, the marginal benefit from those additional increments will decline. "
sassia
Diminishing returns states that when more and more variable inputs are being employed on a fixed input, total product and marginal product increases initially attains maximum and falls (certeris paribus) .
Avuwada
What is monopoly
benzi Reply
nothing
Its when one firm controls the entire market and is the price setter
aaa
Define indifference curve
mama Reply
a combination of two commodities which a consumer consume that gives the same level of satisfaction.
samson
what is indifferent curve
Sushmi Reply
it defines we must follow theorie.
Do

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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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