ABSTRACT
This chapter examines the effects of Stanford’s proposed tax/subsidy industrial policy solution on the Canadian auto industry and on auto production in the United States and Mexico. It explores the incentives for retaliation by the United States with its own strategic industrial policy and the effects of this response on North American trade. The chapter addresses the implications for the future of industrial policy in an era of lowered tariffs and banned export subsidies and proposes the alternative of bilateral or multilateral industrial policy for nations within free trade areas. While industrial policy in an era of World Trade Organization -administered free trade is a considerable issue, Stanford addresses it by examining the specific example of Canadian industrial policy in the automobile industry. While the proposed policy would cause churning in the Canadian auto industry, the net effect would be positive, thus providing benefits both to the auto industry and to the Canadian economy on the whole.
