Analysis of the 1980 U.S. Import Quota on Automobiles

In 1980, the United States implemented an import quota on automobiles to protect its domestic industry from rising competition, particularly from Japanese manufacturers. This policy temporarily bolstered employment and increased domestic car sales by restricting foreign imports. However, it also led to unintended long-term consequences, such as incentivizing foreign companies to establish manufacturing plants within the U.S., ultimately altering the competitive landscape. While the immediate effects were positive for American auto producers, the industry faced renewed challenges as foreign manufacturers capitalized on new opportunities in the domestic market. This analysis examines these dynamics, highlighting both the benefits and drawbacks of the import quota policy.

Running head: INTERNATIONAL RELATION & GLOBAL ECONOMY
International relation & global economy
Name of the Student
Name of the University
Author note

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Table of Contents
Introduction................................................................................................................................1
Discussion..................................................................................................................................1
Conclusion..................................................................................................................................5
References..................................................................................................................................6

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Introduction
The automobile industry has been experiencing a continuous fall in its sale and
growth since the time being. However, in 1980s it was seen that the automobile industry of
United States has started experiencing an increase in its sale and a tough competition from
the import of foreign automobiles. This has put pressure on the industry to take up more
investment and capital expenditure. This changing nature of automobile industry in United
States had a detrimental impact and a great pressure on the economy as a whole (Law, 2017).
The essay discusses about the imposition of import quota on the automobile products coming
in the United States market from other foreign countries. Further it analyses the impact of
such policy on the home market as well a on the non-US manufacturers. A critical analysis of
the impact of quota restriction of 1980 on the import of foreign automobile in the US market
has been discussed in the paper.
Discussion
The condition of the United States automobile industry was worsening from 1979 due
to various reasons, with a reduction in sale of domestic automobiles to negative profits. The
industry has been facing a lot of problem in the year 1979 to 1980. The rate of layoffs of
domestic workers was also increasing at a fast rate in the industry. However, it was noticed
that these issues were mainly seen in the domestic market with major structural changes in
the automobile sector. On the other hand, it was noticed that the foreign automobile
manufacturers were growing their business in the US market. The sales and profits of foreign
manufacturers increased at a very fast rate during the year 1979 to 1980. The sales from the
automobile entering the US market from the foreign country especially Japan had increased
inconsiderably. It was evident that sale of foreign automobile in the US economy had
recorded 21 percent of the total automobile sale in the economy (Nanto & Elwel, 1980). This

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has been an alarm for eh country as the domestic manufacturers were suffering from such
incidence. Such an increase in the import of foreign auto in the US market was due to lack of
quota and other restriction on foreign imports. The import of cars from the foreign market
accounted 23 percent, which is a great rise compared to past years. Such condition was put
forward to the government of the country and various steps were taken to resolve the
situation. Some of the steps taken by the government and other officials of the economy are
import restrictions, relocation of foreign manufacturer in the domestic market and offering
incentive to consumers to purchase domestically produced goods (Nanto & Elwel, 1980).
The most affected measure taken by the economy on controlling the rise of sale and
import of foreign market is import restriction. The economy took various import restriction
methods as well for controlling the issue. The two most important measures taken include
import quota and a negotiation with the foreign automobile manufacturer to restrict export of
their products in the US market. The restriction is on the Japanese market to reduce the
import of cars in the US market that had affected the revenue and expenditure of US
government (Sierzchula et al., 2014). The economy was with the aim to impose quota on the
impost of foreign cars so that slowly there is a shortage of such cars in the market. This was
done so that in such as shortage situation the price of foreign cars will increase compared to
other domestic cars causing the demand to fall. Such an effort would result in a decrease in
the sale of foreign cars in the domestic market creating a better place for domestic cars. The
increase in the price of foreign cars was done to show an artificial scarcity and not due to
increase in manufacturing cost. Such a restriction has a different affect on different section of
the society in the US economy (Nanto & Elwel, 1980).
The effect of such an agreement was good on the economy with various sections of
the society gaining from it. The main aim of such an agreement is to increase the employment
rate that was affected due to increase in foreign import and driving sale of domestically

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manufactured cars. The General Motors gained a lot from such a restriction, as it is the
company holding 45 percent share of the automobile market. However, the economy also
suffered from an opportunity cost from such as restriction. The most crucial cost that the
company suffered was a fall in its own export to the foreign countries of various items. This
led to a decrease in the employment rate and GNP of the country instead of an increase that
was estimated by the country while imposing the quota. Moreover, the restriction imposed by
the government of the country on the automobile sector violated the policy put forward by the
General Agreement on Tariff and Trade (Matsushita et al., 2015). Thus the restriction was
done keeping in mind only the increase in the employment in the automobile sector and not
the whole economy.
The impact of such a restriction was very severe on the retailers and suppliers that
were involved in the selling of imported cars to the consumers. The consumers of foreign cars
were also affected badly by the restriction. Non-US manufacturers were impacted badly due
to the quota system on automobile trade leading to decrease in their revenue and increase in
unemployment in their respective economy (Villareal & Fergusson, 2017).
Restriction on the automobile industry had a long-term effect on the automobile
industry of US economy since 1980. Such as restriction was followed by an increase in
employment of workers in the automobile sector of US from 1982 to 1996. However, there
was certain fall in employment in 1986 to 1987 period due to a fall in the sale of domestically
produced autos. Such a fall in the sale was the first incident that took place after the
restriction of 1980s (Drauz, 2014). Moreover, it was seen that the automobile industry of US
started decreasing between 1987 to 1990 due to closing of various assembly plants of US
such as the five General Motor pants and two of the Chrysler. The restriction put forward by
the economy in 1980s did not save the domestic automobile manufacturer from setting back
in their sale. This is because foreign auto manufacturers started to set their plants in the US

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market in 1992 such as Nissan planned to set a total of 465,000 units in the US market
(Singleton, 1992).
Figure 1: US car sales by US manufacturers, imports and Japanese new plant settings
Source: (Nanto & Elwel, 1980)
The automobile market of US has undergone huge fluctuations over the last thirty-five
years. The industry has faced a number of crises in its market even after the quota restriction
on the foreign import of cars. Such as step in 1980 has shown both loss of opportunity of the
economy and the benefits of innovation that took place in the domestic market since then.
Recently, the automobile sector of US has been revitalized with an increase in the profit of
some of the famous manufacturing companies such as Ford since 2012. Such a rise was a
great success that the domestic industry faced from 2006 to 2011 (Economic Policy Institute,
2017).

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Conclusion
From the above discussion, it can be concluded that the import quota restriction that
took place in the US automobile industry in 1980 had both positive and negative effect. The
positive effect was increase in employment and domestic car sale. However, the positive
effect was restricted to few years because the industry was again hit by foreign market as
foreign companies started setting their plants in the US economy since 1992.

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References
Drauz, R. (2014). Re-insourcing as a manufacturing-strategic option during a crisis—Cases
from the automobile industry. Journal of Business Research, 67(3), 346-353.
Economic Policy Institute. (2017). The Decline and Resurgence of the U.S. Auto Industry.
Retrieved 20 October 2017, from http://www.epi.org/publication/the-decline-and-
resurgence-of-the-u-s-auto-industry/
Law, C. M. (2017). Restructuring the global automobile industry(Vol. 4). Taylor & Francis.
Matsushita, M., Schoenbaum, T. J., Mavroidis, P. C., & Hahn, M. (2015). The World Trade
Organization: law, practice, and policy. Oxford University Press.
Nanto, D., & Elwel, C. (1980). IMPORTED AUTOMOBILES IN THE UNITED STATES:
THEIR RISING MARKET -SHARE AND THE MACROECONOMIC IMPACT OF A
PROPOSED IMPORT RESTRICTION. Retrieved 20 October 2017, from
https://digital.library.unt.edu/ark:/67531/metacrs8147/m1/1/high_res_d/80-
157_1980sep15.pdf
Sierzchula, W., Bakker, S., Maat, K., & van Wee, B. (2014). The influence of financial
incentives and other socio-economic factors on electric vehicle adoption. Energy
Policy, 68, 183-194.
Singleton, C. (1992). Auto Industry Jobs in 1980's- A Decade of Transition. Retrieved 20
October 2017, from https://www.bls.gov/opub/mlr/1992/02/art2full.pdf
Villareal, M., & Fergusson, I. F. (2017). The North American Free Trade Agreement
(NAFTA).