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Toyota and Government Policy

From the beginning, Toyota has had the support and assistance of the Japanese government in its development. That assistance enabled it to become competitive enough to make major inroads on the automotive industry in the United States, which brought it into conflict with the U.S. government. The contemporary conflict between the two governments over the issue of protectionism and free trade is exemplified by this case.

The initial protective legislation was adopted in May of 1936. This was the automobile manufacturing business law which indicated that all business in the automotive industry required a government permit. The legislation was drafted by the military, which was in ascendance at that time and needed good domestic products. The legislation required that any company making over 3,000 vehicles per year had to obtain a license from the government. Only those firms with more than 50 percent of shares and more than 50 percent Japanese members of boards of directors could be licensed (Ohno, 1988).

The intent of this law was to protect the domestic automotive industry, while suppressing the foreign car assembly business. The law was quite effective in achieving these ends, even considering the intervening war which impacted the entire industry.

The government did not end with this piece of protective legislation, however. The Japanese government supported both the domestic automotive industry and its expansion into foreign markets with a whole series of actions. Companies like Toyota were supported with government funding, tax breaks, favorable export legislation, and unfavorable import legislation impacting foreign car makers, like car makers from the United States.

For example, during the 1980s the Japanese government actually built a worldclass exhibition center specifically for the automotive industry. It was located on the eastern


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