TO WHAT EXTENT WAS THE US CAR INDUSTRY HARMED BY IMPORTS OF FOREIGN CARS OR BY FOREIGN CAR MAKERS SETTING UP PRODUCTION IN THE US - Essay Example

European automakers accounted for nearly 2 percent in 2001.Besides, US is also involved in joint ventures with Japan producing Autoalliance International and New United Motor Manufacturing, Inc. which again recorded for almost 4 percent share. Thus with so many foreign firms operating in the US market, the US domestic car makers are continuously facing tough competition. Both domestic prices and world prices have welfare significance. The main objective of trade policy is ‘to maximize the nation’s welfare through increased economic efficiency’.

(The interaction amongst trade, investment and competition policies, 2008). If the terms of trade i.e. the relative price differ, both the trading countries can earn profit. The gains from trade accrued to the country by opening its markets to trade by no means exhaust the potential possibilities. Production may proceed through a number of stages, making use of raw materials and intermediate products. Caves, Jones and Frankel, (2004) said that if ‘international trade is allowed in these inputs, as well as in final goods, further gains are available.

Indeed some countries rely heavily on such trade’. (Caves, Frankel, Jones. 2004). Large countries with external economics gain from trade. (Collie, 2007.). International trade helps the manufacturers and distributors for acquiring products and services of foreign countries. Domestic countries acquire them because they get a cost advantage simultaneously by learning advanced technical and technological methods. (Seyoum, 2000). Imports help the domestic countries not only in getting the resources at a cheaper cost that are unavailable at home country but also increasing the consumption level and profit level while export help the home country to earn huge amount of foreign currencies.

As found by Lutz (1994) import is determined by increasing per capital income level, prices of import and the level of the exchange rate. (Lutz, 1994. Quoted by Seyoum,