Joint Ventures, Voluntary Export Quotas, and Domestic Content Requirements

Attention is focused on the welfare effects of protectionist trade policies that can be used to aid domestic automobile producers -- namely, voluntary export quotas, joint ventures, and domestic content requirements. To allow welfare comparisons, identical market conditions are assumed. In addition, the trade measures each bring about an identical rise in domestic price above the free trade price. Domestic content requirements raise automobile prices because of the higher costs of US production, but they entail continued competition between domestic and foreign auto producers. At the equivalent domestic price, domestic producers would be expected to make more autos than they would when the price increases were caused by voluntary export quotas. Whether production by domestic manufacturers would be higher or lower than in the case of the joint venture depends upon the amount of market power developed by the joint venture versus the cost reduction it attains. The US economy incurs substantial deadweight losses in all cases.