Infant Industries:

One of the most notable arguments for protection is known as the infant industry argument. The argument claims that protection is warranted for small new firms especially in less developed countries. New firms have little chance of competing head-to-head with the established firms located in the developed countries. Developed country firms have been in business longer and over time have been able to improve their efficiency in production. They have better information and knowledge about the production process, about market characteristics, about their own labor market, etc. As a result they are able to offer their product at a lower price in international markets and still remain profitable.

A firm producing a similar product in less a developed country, on the other hand, would not have the same production technology available to it. Its workers and management would lack the experience and knowledge of its developed country rivals and thus would most likely produce the product less efficiently. If forced to compete directly with the firms in the developed countries the LDC firms would be unable to produce profitably and thus could not remain in business.

The main motive behind Infant Industry Argument is to create a level playing field between a backdated industry and a highly advanced industry producing similar commodities. This argument has been observed to be followed more often by the developing or the under developed countries which possess comparatively backdated and traditional industries. In such cases, if these industries are subjected to the international markets then their products would not be able to compete with the price offered by the highly mechanized and advanced industries producing the same output and probably better quality too. Keeping all these aspects and factors into mind, two economists named Hamilton and List proposed an argument that came to be known as "Infant Industry Argument".