High Tariff Barriers can Lead to Support of Lame Industry

[Rimmer]

High tariff barriers, while intended to protect domestic industries from foreign competition, can sometimes lead to inefficiencies and the development of what is often called a "lame industry." Here's why:

1. Reduced Competitive Pressure

Tariffs shield local producers from international competition, reducing the incentive to innovate, improve quality, or lower costs. Without competitive pressure, industries may become complacent and inefficient.

2. Misallocation of Resources

Industries that rely on tariff protection may survive despite being uncompetitive on a global scale. This leads to inefficient resource allocation, where labor and capital are tied up in less productive sectors instead of being directed toward more competitive industries.

3. Higher Prices for Consumers

Tariffs raise the cost of imported goods, often leading to higher prices for consumers. Domestic producers, protected from competition, may charge more without necessarily improving quality.

4. Retaliation and Trade Wars

Other countries may impose counter-tariffs, reducing export opportunities for domestic firms. This weakens industries that could have been globally competitive, further promoting inefficiency.

5. Difficulty in Global Expansion

Protected industries may struggle to compete internationally because they are accustomed to operating in a less demanding, tariff-protected environment. When exposed to global markets, they often fail due to a lack of innovation and competitiveness.

Conclusion

While tariffs can provide short-term protection to developing industries, long-term reliance on them often results in inefficiencies, lack of innovation, and an uncompetitive "lame industry." Sustainable growth requires a balance between protection and gradual exposure to international competition.

 

[Rimmer]

Here are a few real-world examples where high tariff barriers contributed to weak, inefficient industries:

1. India’s "License Raj" (Pre-1991 Economy)

For decades, India imposed high tariffs and strict import restrictions to protect domestic industries. While this encouraged local production, it also led to inefficient, low-quality manufacturing. Industries relied on government protection instead of innovation. After economic liberalization in 1991, many protected industries struggled to compete globally.

2. Argentina’s Automotive Industry

Argentina has historically imposed high tariffs on imported vehicles to protect its domestic car manufacturers. While this shielded local companies, it led to limited innovation and high vehicle prices for consumers. Argentine automakers struggled to compete internationally, relying on government support rather than improving efficiency.

3. The U.S. Steel Industry

The U.S. imposed tariffs on imported steel to protect domestic producers, most notably under Trump’s administration in 2018. While this temporarily helped local steel companies, it also raised costs for industries that rely on steel (like auto and construction), making them less competitive. U.S. steelmakers, shielded from global competition, faced little pressure to modernize.

4. Nigeria’s Textile Industry

Nigeria imposed high tariffs and outright bans on textile imports to protect its domestic textile sector. However, due to weak infrastructure and corruption, the local industry failed to grow competitively. Instead, smuggling of foreign textiles flourished, and domestic production remained inefficient.

5. Soviet Union’s Industrial Decay

The Soviet Union protected its industries from foreign competition through strict trade barriers. While this led to large state-run industries, they were often technologically backward, inefficient, and unable to compete globally once trade barriers fell after the USSR’s collapse.

Conclusion

These cases show that while tariffs can protect industries in the short term, they often lead to inefficiency, stagnation, and reliance on government support. For sustainable growth, industries need exposure to competition and incentives for innovation.