The Economists. Retrieved Essay

Questions:

1. According to the article, “Donald Trump dislikes big global firms”. Explain why, outline his planned policy changes and discuss how these policies could affect US consumers?
2. Multinational companies (MNCs) boomed in the 1990s. Examine the key factors that contributed to the growth of the market power of MNCs?
3. The profits of multinationals have dropped by 25%” and a “30-year window of arbitrage is closing.” What is meant by arbitrage and according to the article, what are the factors leading to the current rise of local companies at the expense of global ones?

Answers:

1. According to the report published in the Economists, it has been seen that Donald Trump has planned to take up a major restructuring in their business policies and thereby slaughtering the power of the big firms and prioritizing the small indigenous firms (www.economist.com, 2017). As a result, this is going to influence the US consumers by creating an upward pressure on prices. The supply is going to reduce. On other hand, as US is planning to shirk off the foreigners working in their MNCs, hence local indigenous people needs to be appointed to meet up the gap. This is going to increase the labor cost thereby the total cost of production. Henceforth, the price of the product is going to raise causing inflation in the economy and a hole in the consumer’s pocket. In addition, people who have been habituated in using a wide range of products is going to face scarcity in their choices and henceforth is going to face problems. Therefore, three main problems has been identified that the consumer of U.S is going to face namely, problem of choice, increasing cost and reduction in the supply of products (Jensen, Quinn & Weymouth, 2015).

2. The decade of 1990s saw a boom in the global economy. Trade policies in the international market have been liberalized in the initial years of the decade. This decade has also been referred to as the golden era of MNCs in global business (Guilford 2016). The key factors that led to the growth of MNCs during this age is as follows:

  • After trade liberalization and opening of the economy, EU integrated with China and Soviet Union to continue their international trade.
  • There has been a constant inflow of foreign investment in those MNCs. This has increased their efficiency and scale economy.
  • The companies has been able to keep their production cost low by outsourcing their business and hiring cheap employees from South Asian nations like India, Bangladesh and China.
  • There has been a radical change in the technologies used by these companies.
  • The emerging economies allowed the influx of MNCs within their economy as it created jobs and employed their population. On other hand, they were able to get benefit from receiving goods at cheaper price.

3. Arbitrage implies the process of selling and consuming same products at different prices in the global market. In this case, the term has been used to define the international trade conducted by the MNCs by recruiting cheap labor from other nations and hiring technologies (Tweed 2017). A highly efficient trade with global economy is going to be strategically slaughtered. The low oil price along with strong dollar has led to this reduction in revenue earnings. The factors that have helped the local companies to rise up and beyond the MNCs are as follows:

  • MNCs are now facing a rise in their cost of production as wages in many countries like China are increasing.
  • The share of profits of these MNCs is continuously decreasing and it decreased to almost 25% within a short span of 5 years.
  • The government is focusing on the local firms by cutting down taxes. Also, by increasing export and import duty of the MNCs the government tried to curb their power thereby enhancing local trade

References:

Guilford, G. (2016). Everything we thought we knew about free trade is wrong. Quartz. Retrieved 13 February 2017, from

Jensen, J. B., Quinn, D. P., & Weymouth, S. (2015). The influence of firm global supply chains and foreign currency undervaluations on US trade disputes. International Organization, 69(04),913-947.

The multinational company is in trouble. (2017). The Economists. Retrieved 13 February 2017, from

Tweed, D. (2017). India could be Donald Trump's next trade war target - The Economic Times. The Economic Times. Retrieved 13 February 2017, from

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