Is it time for Australia to give its up-and-coming industries a helping hand, or should we let market forces decide their fate? The infant-industry theory—a classic economic idea—suggests that new industries need protection from global competition until they’re strong enough to compete on their own. In a world of rapid innovation and shifting trade policies, this debate is more relevant than ever for Australians eyeing the future of our economy.
What Is the Infant-Industry Theory?
First proposed by economists like Alexander Hamilton and Friedrich List in the 19th century, the infant-industry theory argues that governments should temporarily protect new domestic industries from international competitors. The rationale is that these ‘infant’ sectors lack the scale, know-how, and capital to compete with established foreign firms. Protection, typically via tariffs or subsidies, gives them breathing space to grow and become competitive.
- Tariffs: Taxes on imported goods to make them less attractive compared to local products.
- Subsidies: Direct government support to reduce production costs for local businesses.
- Regulatory support: Policies that favor domestic players in government procurement or standards.
This approach has helped transform economies from South Korea’s electronics sector to Brazil’s aircraft industry. But critics say prolonged protectionism can breed inefficiency and stifle innovation.
Australia’s Experience: Past Lessons and New Directions
Australia has historically oscillated between protectionism and free trade. The 20th-century economy was marked by high tariffs supporting manufacturing—from car assembly lines in Victoria to textile factories in New South Wales. The 1980s and 1990s saw a dramatic shift toward liberalisation, with tariffs slashed and markets opened up. The result: greater competitiveness, but also the decline of some traditional sectors.
In 2025, the infant-industry debate is back in the spotlight. The COVID-19 pandemic, ongoing global supply chain disruptions, and a renewed focus on sovereign capability have policymakers re-examining whether certain sectors—like advanced manufacturing, green tech, and quantum computing—deserve temporary protection.
- Advanced Manufacturing: The National Reconstruction Fund, expanded in 2024, channels billions into critical tech, renewables, and medical manufacturing.
- Clean Energy: The 2025 Federal Budget earmarked new subsidies for domestic battery production and hydrogen projects.
- Critical Minerals: Export controls and incentives are shaping a nascent rare earths processing industry, aiming to compete with global heavyweights.
Real-world example: Queensland’s battery gigafactory, which received state support in 2023, is now scaling up thanks to a mix of tax breaks, R&D grants, and local procurement mandates. This echoes classic infant-industry logic, but with a 21st-century twist—tying support to clear milestones and global competitiveness benchmarks.
Risks and Rewards: Is Protectionism the Answer?
Protecting infant industries is a double-edged sword. Done well, it can nurture innovation, diversify the economy, and build resilience. Done poorly, it risks creating ‘zombie’ sectors dependent on government handouts, unable to stand on their own.
Key considerations for Australia in 2025:
- Global Trade Rules: Australia’s trade agreements, including the CPTPP and RCEP, limit the scope for traditional protectionist measures. Any support must be WTO-compliant and targeted.
- Sunset Clauses: Modern policy design increasingly includes time limits and performance targets for subsidies—ensuring support is temporary and outcome-focused.
- Innovation Ecosystem: Rather than blanket protection, the focus is shifting to fostering R&D, skills, and infrastructure that help all sectors compete globally.
There’s also a growing call for strategic selectivity. Not every new industry deserves protection—support should go to sectors with genuine growth potential, spillover benefits, and a path to global competitiveness. The Productivity Commission’s 2025 report warns against falling back into old habits, urging ‘smart’ intervention rather than blanket tariffs.
Looking Forward: The Future of Australian Industry Policy
As Australia navigates the challenges of decarbonisation, technological disruption, and shifting geopolitics, the infant-industry theory is being reinterpreted for a new era. The question isn’t whether to support emerging sectors, but how to do it in a way that fosters genuine innovation and prepares them for global markets.
Policy trends to watch in 2025 and beyond:
- Targeted, transparent support tied to performance metrics
- Greater use of public-private partnerships and venture co-investment
- Focus on skills, R&D, and export-readiness, not just protection
- Agility to pivot support as technology and market conditions change
The infant-industry theory remains a powerful idea, but its success depends on smart design, accountability, and a relentless focus on global competitiveness.
