Infant industry paradox: Trump's tariffs raise questions about US protectionism

Not an 'infant' that needs a tariff rampart for protection

One of the foundational aims of US President Donald Trump’s MAGA –Make America Great Again—goal is to reclaim the USA’s lost status as the world’s principal manufacturing destination.

This, in many ways, is an attempt at reshoring factories back to within the geographical boundaries of the USA. The argument, at least in theory, is driven by the principle that the return of industrial units and assembly lines at scale will create jobs for millions of Americans. As employment grows, income levels will rise, boosting demand for goods and services, setting off a virtuous cycle of consumption and income growth.

Trump has added high tariffs as a mainstream stratagem into this mix. High tariffs, by definition, meant to serve as protective walls to prevent cheaper goods shipped from overseas factories crowding out locally made products by rendering them price uncompetitive.

In the case of the US's recent flurry of tariffs, including Indian goods that now face a 25 per cent export duty if they are to enter the US market, there is a conflating of intent. There are two questions here. First, is President Trump seeking to protect American local industry by raising the landed price of Indian goods through higher tariffs? Two, or is the move demanding lower tariffs for American goods to India?

Who are the infants here?

Let’s examine both the questions. Tariff fortifications to protect local industry are usually deployed to help new industries grow in developing countries. This draws from the 19th century textbook infant-industry theory that argues that new or ‘infant’ industries need handholding and protection through import duties, tariffs, quotas, and exchange rate controls against competition from entrenched global players. Over a period of time, it is argued, the `infant’ will grow, get efficient, create economies of scale and be mature enough to stand shoulder-to-shoulder with the established `bigger boys’.

So, which is the 'infant industry’ in the US that President Trump is trying to protect through higher tariffs to help grow and mature? As commodity-wise analysis shows that India exported merchandise goods worth USD 86.51 to the US in 2024-25. Of these, exports of textiles, fabric, garments and related products was the second highest at USD 11.71 billion during the twelve-month ending March 2025.

A 25 per cent tariff would imply that Indian textiles, including furnishings and bedding products besides garments and others, will now be costlier for the US consumers. In statistical and economic analyses, the universe of goods such as textiles and clothes is classified as consumer non-durables. These products, in many ways, are more `essential’ than `aspirational’.

As a consequence, the US President’s move will result in fanning prices of an `essential’ class of goods for US consumers, the very constituency whose interest is avowedly furthering. The more important aspect is protecting the local industry and getting the factories back to the US to produce goods that are imported from overseas, including India.

Behind the high-octane headline statements, the US President will have to navigate a tricky path. Many goods, including textiles and garments, and electronics, that are exported to the US are from factories contracted in India by some iconic US brands and corporations.

Apple is an example. Levis Strauss & Co. is another. These aren’t `infants’ that need a tariff rampart to ringfence them from competitive pressures till such time they find their feet. They are matured giants with a storied legacy, who have set up supply lines across the world.

Maximalist stratagem

President Trump has ended up taxing products of many American companies entering their own home country.  After all, this move is unlikely to pass the basic smell test of cumulative net benefits exceeding the cumulative costs of protecting the industry. The net costs are clearly higher as the consumers will end up facing inflationary headwinds. Besides, factories are unlikely to sprout up in the US amid a protectionist cover and start rolling out goods in a hurry.

The second intent, of course, is that the US President has taken a maximalist position by raising tariffs on Indian goods. To be sure, he has been rather unequivocal in demanding lower tariffs for American goods to India—a country which he has described as a difficult place to do business in. This, seemingly, is a gambit to prompt a commitment from New Delhi during the ongoing India-US trade deal talks. It is India’s best interest to follow the path of attrition and avoid being forced into a false stroke.