Governments protect infant, declining and strategic industries, fight dumping, cut deficits, raise revenue and block harmful goods.
Infant (sunrise) industries are new and cannot yet compete with big foreign firms. Protection gives them time to grow and cut their costs. Declining (sunset) industries are shrinking. Protection slows job losses while workers retrain.
Strategic industries, such as food, energy and defence, are protected so the country does not rely on others in a crisis. Protection can also stop dumping. Dumping is when foreign firms sell goods abroad for less than they cost to make, which harms local firms.
Cutting imports can reduce a current account deficit. Tariffs also raise tax revenue.
Protection can keep out harmful goods, such as illegal drugs. It can also protect the environment, for example by limiting imports made with heavy pollution.
- Infant (sunrise) industry
- New industry protected until it can compete.
- Declining (sunset) industry
- Shrinking industry protected to slow job losses.
- Strategic industry
- Vital industry such as food or energy.
- Dumping
- Selling exports below cost of production.
Worked example: Arguing for protecting an infant industry
A developing country wants to build an electric vehicle industry.
- Problem: established foreign makers have huge economies of scale and lower costs.
- Protection: a temporary tariff on imported electric vehicles.
- Aim: local firms grow, cut costs, and later compete without protection.
- Risk: protected firms may stay inefficient if the tariff is never removed.
Watch out for this
Dumping means getting rid of waste in another country.
In trade, dumping means selling exports abroad at a price below their cost of production, which can drive foreign firms out of business.
Check your understanding
Why might a government protect an infant industry?
- To give a new industry time to grow and lower its costs
- Because the industry is shrinking
- To raise the price of exports