Question no.

1: Explain how different theories presented in this case study supported and
how they can be tested in general terms?

The different theories presented in the case study are in the context of the competition.The
number of imports of Japanese cars had increased significantly during that time which was a
great concern to the US companies as they were losing sales, some of them had be get sold off,
sell subsidiaries or borrow money.
1st Theory:
The first theory presented in this context by the ITC was that the rise in imports was because of
the fact that the Japanese cars were more fuel efficient, durable and preferred by the consumers.
This was supported by survey of 10,000 US households. This survey was carried out by the
Motor and Equipment Manufacturers Association. Supporters of this theory felt that imports
should not be limited.
2nd Theory:
The second theory was price differentiation created by labor cost differences was the cause.
Bureau of Labor Statistics estimated that average Japanese car workers wages and benefits in
the first half of 1979 were only half those of US car workers. Those supporting this theory
largely favored to impose taxing on the imports in order to raise their prices.

Question no: 2. Explain why the results of the New York Times poll reported above are
meaningless?
Because the main essence of case study was imposing import quotas on Japanese cars whereas
there poll was about the comparison between perfect jobs and cheaper foreign products which is
totally irrelevant.
New York Times poll results showed that 71 per cent of Americans felt that it was more
important to protect jobs than to get cheaper foreign products. The second issue related to the
past performance of US manufacturers, the possibility of achieving economies of scale and
higher productivity with new plant.

The ITC has rejected the idea of protection; they blamed the managers of the US companies for
their bad decisions. They claimed that these managers and firms should not be rewarded at the
expense of the consumer and taxpayer, who would not only face higher prices and taxes, but also
suffer from limited choice.
Question no: 3. Explain the conflict of interest between US car manufacturers and the
UAW?
The main conflict was that the UAW was mostly concerned about maintaining the jobs rather
than protecting the profits of the manufacturers where US manufacturers were trying to produce
cars globally by buying parts in many different countries wherever, they could be bought
cheaper.They pushed foreign manufacturers to produce in the United States and to have 75% of
their parts produced in the US.

Question no: 4. why would the Japanese car manufacturers be willing to cooperate with
limiting of their exports to the United States?
Japanese producers and politicians entered the agreement fearing that lack of cooperation could
result in even stricter limits. When the agreement expired, Japan continued to limit exports, but
by that time the major manufacturers like Honda, Toyota and Nissan already had plants in the
United States and sales from these soon outnumbered imports.
Imports into the U.S. of foreign automobiles, mainly from Japan, have been restricted since April
1981 by a so-called "voluntary restraint agreement." The quotas were imposed in response to
pleas by the U.S. auto industry that it needed time to grow strong enough to compete with the
imports on the free market. The agreement was to limit car exports to the United States to 1.68
million units a year for three years.
The limits on Japanese imports were in quantity not in value, therefore Japan redesign their cars
to modify and to produce new car in new technology.
Question no: 5. Explain how the cost and benefits of the import quotes can be estimated in
monetary terms describing any problems involves?
U.S consumers switched back to consuming more expensive and profitable cars, but this was
partly and effect of the import restrictions, which gave U.S consumers little choice except to buy
more expensive cars. The limit on Japanese imports were in quality not in value therefore
Japanese firms redesign their cars to make them more luxurious and expensive, but the average
Japanese import increase by $2600 in the same period the price of US made cars increased by
40%.

The problem may be, if we didn't protect some of our firms, other countries could dump
thousands of products on our country at extremely low prices and potentially hurt many of our
domestic businesses.
Question no: 6.One study estimated the cost of the quotas at $160,000 per job saved. In
view of this, why do you think the quotas were implemented?
Local Employment:
Because foreign imports are produced in other countries by foreign workers, decreasing imports
and increasing domestic production also increases domestic employment.
Import quotas imposed on Japanese automobiles in the 1980s saved 46200 US production jobs
but at a cost of $160,000 per job per year. This cost was a result of the addition of $400 to the
prices of US cars, and $1000 to the prices of Japanese imports. This windfall for Detroit resulted
in record high profits for US automakers. Not only do trade restrictions depress price
competition in the short run, but they also can adversely affect demand for year to come.
By applying the quotas there may be a chance to improve the job opportunities and investments:
Creates job opportunities:
When a company is on the way of growing strong to compete with other foreign companies,
quotas help safeguards it from stiff competition. As a result, this creates more job opportunities
local workers.
Increase local investment:
While they are considered less economically than tariffs, quotas play an essential role in trade as
they put a limit on goods that are imported in a country, creating shortages that cause price
fluctuations. Although quotas work in a similar manner as tariffs, the additional cash often
benefits foreign producers and not the local government.
7. Explain the differences between the decision making processes of the U.S car
manufacturers and U.S government.
At that time U.S economy was in recession, so to control the demand government increases the
taxes.The US government was mainly concerned about maintaining the jobs rather than
protecting the profits of manufacturer. There are pressures for businesses to reduce costs, which
can lead to increased unemployment as companies lay off workers. Whereas when import quota
was put on the U.S citizen was restricted to buy Local Cars which was a great benefit for the
government as well as U.S manufacturers.. US manufacturer was just concerned about their
profit they are not bothering about the employment of the people.So basically these are the major
difference in US manufacturer and US govt. decision making process.