Monday, June 13, 2011

Can U.S. public policy affect comparative advantage?

According to this case, I strongly believe that the public policy of U.S. affect adversely the U.S. auto industry. For example, Detroit's Big Three have to take care of employees' benefits such as health-care and pension. On the other hand, compared with other foreign auto companies, they obviously did much less then U.S. auto companies. Therefore, foreign companies have more resources to reduce their costs, increase their marketing campaign, and wilder promoting. In general, I do not see any useful help from the U.s. government. From my point of view, I think the U.S. government should modify their public policy for rescuing its auto manufacturing industry. For example, the Government could provide some discounts or incentives for consumers who purchase U.S. cars in order to improve its comparative advantage. Moreover, they could also boost tariff to protect its auto business, no matter a conventional tariff or a protective tariff. Although foreign competition can inspire domestic development, sometimes excess competition will destroy the whole plan.

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