568 - Logical Reasoning

The Japanese economic model created strong domestic industries through subsidies from its Ministry of Trade and by closing off competitive foreign firms to its domestic market. This strategy promised to help economic growth by incubating domestic industries. New Japanese industries could count on a known local demand and would be protected from competition by tariffs and other barriers. The program could reduce the amount of imports and therefore improve the nation's balance of trade.
Which of the following, based on the passage above, is a weakness in this economic strategy?

1. A protectionist policy will create animosity among other nations.
2. Fast growth of small industries will create a class of millionaires and increase the inequality of income.
3. Subsidies and import constraints keep domestic prices high and impose a burden on consumers.
4. Quotas are more regressive than tariffs.
5. The demand for the products made by the incubated industries would not be known