Old and new trade policies

Latin American development strategies have historically been inextricably linked with trade theory and policy. The author's main argument is that the old infant industry and the new strategic trade arguments are fundamentally similar. Among their similarities is the justification of selective protection of certain economic sectors. Among their differences, the infant industry argument justifies temporary protection, while the argument in favour of strategic protection of certain industries justifies their protection on an indefinite basis. Yet, in the context of turning inward-oriented into outward-oriented economies, the difference between trade policy and industrial policy becomes nebulous. This is due to the theoretical conclusion drawn by both arguments -both of which favour protectionism- that the best, most welfare- enhancing policy choice, even for strategic sectors, is the use of subsidies. After examining the theoretical rationale of both arguments, this essay concludes with a set of observations and prescriptions concerning the economic, political and institutional implications which should be taken into account by policy-makers when attempting to design a viable, long-term strategic development plan.