In the 1980s, "voluntary restrictions" on automobile imports raised prices of Japanese cars $1,000, European cars by $2,000 and American cars by $500. During the period following these restrictions, both Japanese and European automakers opened parts and assembly plants in the US. Why did this happen? How is it related to regulation?

Question

Quizplus · Accepted Answer

The Answer is The threat of government regulation led foreign car manufactures to restrict the number of cars they imported in order to prevent even stricter import quotas or large tariffs. The opening of new auto plants in the US by Japanese and European automakers allows these firms to produce cars that would not be affected by trade barriers. The opening of these plants within the United States may also increase political support for these companies' preferred policies including lower trade barriers for imported cars.

In the 1980s, "Voluntary Restrictions" on Automobile Imports Raised Prices