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Problem definition: We study how the government of a developing country optimizes its local content requirement (LCR) policy to maximize social welfare in a setting where foreign original equipment manufacturers (OEMs) produce and sell multicomponent products in the developing country. The foreign OEMs’ local sourcing of components is more costly than global sourcing because of technology gaps between local and global suppliers. Academic/practical relevance: We characterize and compare the optimal product-level and component-level LCR policies imposed on multicomponent products. Component-level LCR and its relationship with product-level LCR, although relevant to trade policy making, have not been studied in prior research. Methodology: We use stylized modeling with a Stackelberg game, welfare optimization, and Cournot competition. Results: The optimal component-level LCR for low-gap …