Governments sometimes protect infant industries from international competition during their development.
But there can be drawbacks to this policy.
First, governments may make errors in identifying the industries that are worth protecting.
Second, protection can make domestic firms less innovative, less competitive, and more likely to increase prices.
Third, this may not be the best use of public funds because small, promising ventures should be able to find private financing.
Governments may also intervene in trade to pursue a strategic trade policy.
This involves governments helping firms gain economies of scale and first-mover advantages.
A potential benefit of a strategic trade policy is higher corporate profits resulting from solidified global market positions.
A potential drawback is that government assistance can cause corporate inefficiency and higher costs.
Assistance can also be subject to political lobbying whereby special-interest groups benefit most and consumers benefit little.