In 1980, automobile manufacturers in the United States asserted that import quotas be instituted on foreign-produced vehicles marketed in the United States. In a critical essay, elaborate on the costs...

Running head: COSTS AND BENEFITS OF IMPORT QUOTAS 1
Costs and Benefits of Import Quotas
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COSTS AND BENEFITS OF IMPORT QUOTAS 2

Quotas are generally implemented to safeguard domestic industries from foreign
competition. It acts as a trade restriction and restricts usage of foreign products in the country.
This is usually done when the industry is not mature enough to compete with the foreign
manufacturers and also to safeguard the economy. Before we discuss the import quotas of 1980
in the United States, it is important to know the economic background of the country at that time.
The three major manufacturers of automobiles in United States namely, Ford, General
Motors and Chrysler made pleas that the quotas were implemented in auto industry as it required
time to become strong enough to compete with the foreign market imports. The major country
affected by this quota was Japan who were allowed to import 1.68 million cars annually for three
years. The Reagan Administration went into Voluntary Export Restraint (VER) agreement to
impose the quota and help the ailing auto industry. One of the major objectives served was to
protect the auto industry from severe intensity of competition from cheaper automobiles from
Japan. The quota agreement in mainly imposed to restrain the quantity of products entering into
the market. Consequently it serves the purpose of tariff being imposed on a similar note except
for difference in revenue on the part of government.
The three automobile manufacturers were in great financial difficulties during that time
and the blame was put on the cheaper imports from Japan. Thus, they apparently failed to
compete the Japanese products and begged for drastic steps. Since, the automobile industry was
one of the major source of employment for the citizens of United States, failure of automobile
sector would result in very high unemployment rate which the economy cannot sustain. One out
of every twelve citizen were employed in auto industry. Apart from these, the auto industry was
in itself major consumer of Steel, glass, aluminum and other materials used in manufacturing.
Ford and Chrysler recorded a loss of $ 4.2 billion and their units sold were lowest since 1961.
COSTS AND BENEFITS OF IMPORT QUOTAS 3

The government took the decision to implement quota, keeping these fallouts in mind (Zeitlin
&Herrigel, 2000). There are benefits of implementation of quotas but it comes at a costs that the
consumer has to bear.
Benefits of Implementation of Quotas
The major benefits of advantages of implementation of quotas can be divided into two
main categories.
i) Economic revival
ii) Employment generation
Economic Revival
The economy of United States was facing a down turn and in a major boost for the
economy quotas were implemented. The huge losses made by automobile industry, put it on the
verge of closure. So the implementation of quotas helped them by making consumers of United
states to purchase automobiles from domestic manufacturers. The overall...