Country A currently imports solar panels at $30,000 each. The government is using only 10 percent of the program as domestic content, exporting clean energy to neighboring countries. Country B imports also solar panels at $25,000 each, but uses 70 percent of the program as domestic content. If both countries produced solar panels home, the costs would have reached $25,000 for country A and $20,000 for country B, but there would have been an initial shakedown period during which solar panels would cost $35,000 for country A to produce and $40,000 for country B to produce.
a. Suppose each country must go through a shakedown period of high costs on its own, before accessing any financial support from abroad. Under what circumstances would the existence of the initial high costs justify infant industry protection?
b. Now suppose that both countries bring infant industry argument for protecting this industry. Explain which country will be successful in preserving this argument and why.