Interventionist Trade Policies of the United States Government in the 1980s on the Japanese Automobile Industry

INTERVENTIONIST TRADE POLICIES OF THE UNITED STATES GOVERNMENT IN THE 1980s ON THE JAPANESE AUTOMOBILE INDUSTRY

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Interventionism is the state in which a government in an economic policy perspective creates rules and regulations in a market process to influence market performance in favor of the general welfare of its citizens or its countries’ local industries. It can also be used as an intervention to influence objectives such as the Economy growth, raising wages, promoting income equality, increasing profits and managing money supply (Destler & Odell, 2010).

The laws and regulations made in form of interventionism by the United States government in the 1980s ensured the protection of infant local automobile industries and resulted in increased employment by the local automobile industry. Currently, the country is the home for many worldwide vehicle and auto parts manufacturers. In the year 2015, statistics show that the production of the automobile was over 12 million making it the second largest producer of automobiles in the world after China (Select USA, 2016).

By definition Tariffs are duty’s or a tax imposed by states or government on imported products thereby creating an increase in price for the final consumer while Quotas are restrictions of quantitative manner placed on imports of a specific product over a given period of time.  In regards to the economic theory of demand and Supply in relation to tariffs, domestic producers in the automobile industry are favored because they receive higher sales due to their prices, while the government benefits by attaining higher revenue. A low number of the imported automobile was demanded to result in low production of the same and hence low supply. In regards to the economic theory of demand and supply in relation to quotas, low imports of automobile results to a shortage in supply hence the increase of price which leads to a decrease in demand creating a new equilibrium from the one that previously existed (Harbury & Lipsey, 2010).

Quotas on the automobile industry were beneficial to the government of the United States in that they boost local investments, they also help protect the countries local companies. The countries domestic manufacturers in the industry were able to compete favorably and have the opportunity to expand. Additionally, they also get an opportunity to increase their revenue.

In the United States automobile industry, some of the Market conditions that have created the decline in the market for an automobile include; the crash of the credit market, low-efficiency cars and health care. In regards to the crash of the credit market, that had previously made it easier for individuals and corporations to access loans to buy cars, the automobile industry was negatively affected. Heath care issues in production also resulted in doubling the cost of production thereby increasing the cost of the automobile to the consumer and thereby causing a decrease in demand for cars. The increase in demand for efficient 21st Century green cars also resulted in the decrease in demand for the 20th-century automobile that is currently most producers by companies (Zeese, 2008).