Reassessing the infant-industry protection claim
Of all the rationales for protectionist measures, the case for shielding new industries from well-established foreign rivals arguably carries the strongest theoretical appeal. The basic story is this: by imposing restraints on import competition, a home-grown sector gets breathing room to grow, acquire know-how, and raise efficiency until it can stand on its own. Consumers at first bear the burden of higher prices, but in the long run they stand to gain from more jobs and cheaper goods as the fledgling industry matures.
There is little mystery about recent price behavior: tariffs have pushed prices higher. A study conducted by the Federal Reserve Bank of New York concluded that tariff measures added about 2.9 percentage points to overall goods price inflation, and that without tariffs those prices would have edged downward instead. Proponents of tariffs have, in response, recast the infant-industry idea to defend trade barriers even in sectors that are far from being new. The core promise remains the same: domestic firms require protection so they can compete, innovate, and reduce costs until prices fall even lower than their pre-tariff levels.
A contemporary version of the argument appeared in National Review, where Michael Brendan Dougherty claimed that tariffs can gradually push prices below their starting point. When economist Don Boudreaux dismissed the claim as “bizarre,” Dougherty replied that critics overlook the dynamic way markets adjust to tariffs—by changing incentives, adapting, and cutting costs. He doesn’t spell out every detail, but he suggests that a shift in tariff policy could spark renewed domestic competition and, as a result, lower prices. Even though firms would respond to competitive forces without a tariff barrier, the argument remains that tariffs speed up the process.
From there, the revised infant-industry argument traces its lineage back to the framework laid out by Alexander Hamilton and his ally Friedrich List over two centuries ago. In 1791, Hamilton’s articulation may have seemed apt for a young nation seeking to fortify its economy and security against established European powers.
Yet contemporaries warned that special interests—an expression of the “factional violence” the Federalist era’s debates had already dissected—were coalescing around Pennsylvania’s emerging iron industry and pressing for protective tariffs. James Madison, a few years earlier, cautioned against a premature policy of boosting manufactures that could drive tariffs too high. In the end, Hamilton endorsed a tariff plan that was far more modest than his theoretical musings suggested. American iron producers benefited from higher duties on their rivals than on most other imports, and the Hamiltonian line of thinking about infant industries has endured in American policy discourse ever since.
Two hundred and fifty years on, those same infant industries still seem to be in a perpetual adolescence. Steel, the direct successor to the era’s steel and iron manufacturers, remains a central target of protectionist tariffs across administrations, including those of Donald Trump and Joe Biden, just as it did under George W. Bush. Indeed, steel has been a recurring beneficiary of protective measures for much of America’s history.
This long spell of “infant” status invites us to consider a new label. Some observers have begun calling these industries the “Peter Pan” kind—businesses that never quite grow up because tariffs guarantee they never have to.
A question tariff advocates rarely pose is this: why do some American producers incur higher costs than foreign rivals even when they face lower-cost competition from abroad? The answer lies in the particular rules, choices, and constraints within specific firms and industries. Tariffs, by their nature, address none of these internal factors. Steel provides a dramatic illustration, but it is far from the only example.
In 1947, United Steelworkers secured a contract provision known as Section 2-B. Among other things, it prevented mill managers from changing established work practices unless new technology dictated the change. When steelmakers sought to discard that clause in 1959, the process faced stiff resistance, and a strike involving 500,000 workers lasting 116 days ensued. The strike helped push buyers to seek steel from abroad, and 1959 marked the first year the United States imported more steel than it exported. One of the then-nascent technologies that was delayed for years was the basic oxygen furnace, which could produce steel much faster and cheaper than the open-hearth method. By 1965, only about 17 percent of American steel was produced with the basic oxygen process, while Japan used it for about 55 percent of its steel production.
Change arrived not from the mills but from a steel customer. Vulcraft, a maker of steel joists, grew tired of paying the industry’s prices and waiting for deliveries from major producers. In 1969, freed from unions and entrenched assumptions about what technology was or wasn’t required, the company pursued new steel-production methods and found a solution in electric arc furnaces, technologies that had already gained wide acceptance around the world earlier in the century. Vulcraft’s parent company would later become Nucor, and minimills like these would come to supply a large share of America’s steel.
Thus, the modern steel industry was built by a dissatisfied buyer who found a way to work around the protections that favored incumbents. In other words, the United States’ steel sector did not uniformly outpace global competitors; it lagged behind many of the most current technologies for a long period.
The broader implication is clear: the assertion that “higher domestic production costs necessitate tariffs” often arises as a consequence of restricting competition in the first place. It seems paradoxical to argue that blocking yet more competition through tariffs will cure the very problems created by earlier protection.
Supporters of tariffs frequently overlook the fact that importing steel also delivers cheaper input material to downstream users—manufacturers who rely on steel. A 50 percent tariff on steel effectively tightens the supply valve, forcing buyers to choose more expensive domestic steel. Since building new mills takes years, this leads to longer lead times and delivery delays for producers.
We can also draw on historical experience to see what happens when tariffs on inputs are loosened. India, in the 1990s, liberalized access to intermediate goods, and researchers found that new inputs accounted for roughly 31 percent of the new products Indian manufacturers introduced. Conversely, when the United States imposes steel tariffs, downstream firms lose competitiveness. This helps explain why American businesses repeatedly seek exemptions from tariffs, particularly for essential materials like steel.
If tariffs were justified by national security concerns, one would expect a stronger argument. Yet the logic doesn’t hold up well here either. Production and access are intertwined, but access can be secured without domestic production. The Commerce Department reports that in 2025 the United States imported steel from 79 countries, with Canada as the leading supplier. The top ten exporters supplied nearly 78 percent of U.S. steel imports, and none of them were adversaries—at least not before tariff crusades shifted those relationships. Moreover, the American Iron and Steel Institute notes that only about 23 percent of finished steel in the United States was imported in 2024, underscoring a robust level of domestic access.
Advocates’ national-security rationale also clashes with research on trade and peace. The Center for Strategic and International Studies has found that expanded trade diminishes the likelihood of military conflict between nations. Globalization lowers the risk to national security by spreading dependencies across many trading partners, so that war would disrupt more than a single link in a supply chain.
When Hamilton advanced the infant-industry idea, he assumed the protected sector would eventually mature and stand on its own. Steel, like many other supposed “Peter Pan industries,” has demonstrated that Madison was right: some sectors choose not to mature, and it is time to stop pretending that tariffs can coax them into maturity.
