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Answers To Case Study Import Quotas On Japanese Cars
Answers To Case Study Import Quotas On Japanese Cars
Ans.1 Two theories are presented in this case study. One theory was that imports were perceived
as having better fuel economy, engineering and durability. Supporters of this theory felt that
imports should not be limited. Another theory was that price differences created by labour cost
differences was the cause. Those supporting this theory largely favoured taxing imports in order
to raise their prices. These theories can be tested by observing the consumer demand for
imported motor vehicles.
Ans. 2 The New York Times report showed that 71 % of Americans felt that it was more
important to protect US car workers’ jobs than to get cheaper foreign products. However, the
results of this report are meaningless because by that time major manufacturers like Honda,
Toyota and Nissan already had plants in US and sales from these soon outnumbered imports.
During the three years of the original export agreement, the average Japanese import increased
by 2600$, and prices of US made cars increased
Ans. 3 There was conflict of interest between US car manufacturers and the UAW. The UAW
was mostly concerned about maintaining jobs rather than protecting the profits of the
manufacturers. They thus pushed for foreign manufacturers in the US to have 75% of their parts
produced in the US. This was against the interest of the manufacturers, who were trying to
produce cars globally by buying parts from many different countries wherever they could be
bought cheapest.
Ans. 4 Japanese producers and politicians entered the agreement fearing that lack of cooperation
could result in even stricter limits. Japan continued to limit exports, but by that time major
manufacturers like Honda, Toyota and Nissan already had plants in US and sales from these soon
outnumbered imports.
Ans. 5 The cost and benefits of the import quotas are controversial. As the case study points, the
US car industry did recover, but some of this was due to the economy moving out of recession.
US consumers switched back to consuming more expensive and profitable cars, but this was
partly an effect due to import restrictions, which gave the US consumers little choice except to
buy more expensive cars. During the three years of the original export agreement, the average
Japanese import increased by 2600$, and prices of US made cars increased by 40%.
Ans. 6 Both tariffs and quotas were implemented to lead to higher prices to U.S. consumers of
imported Japanese cars. With tariffs, however, most of this price increase went to the U.S.
government in the form of tariffs. Japanese companies (or their dealers), on the other hand,
collected most, if not all, of the higher prices associated with the scarcity of imported Japanese
cars. The net result was that the U.S. market turned to be extraordinarily profitable to Japanese
automakers, which it was.
Ans. 7 The US government preferred for tariffs because efficient companies eventually
overcame the effects of tariffs by cutting costs and prices, whereas efficiency counts for nothing
in the case of quotas. Since quotas had to be allocated based on current sales, automakers like
Toyota and Nissan with large market shares would prefer quotas, whereas automakers like
Honda and Mitsubishi with smaller market shares would prefer tariffs. Regardless of the type of
trade barrier imposed, U.S. manufacturers raised their prices in line with higher import prices.
However, U.S. manufacturers also preferred quotas because quotas enabled them to disguise the
reason for higher U.S. car prices.