New World, New Policy: How Tax Cuts help U.S companies to go abroad

Professor Michael Czinkota

World trade has forged a network of global linkages, in which everyone and every country is involved. Nowadays, a drought in Brazil and its effect on coffee production and prices is felt around the world. U.S subsidies for ethanol production from corn affects prices for other agricultural crops and livestock in the far reaches of the world. As the key player in globalization, any U.S reform tends to change the international market. The old saying goes, if the U.S. sneezes, other nations catch a cold.

After only 100-days in office, President Trump has already released a tax reform memo to the public. Although not complete and detailed, there is clear a signal coming from the release how the government would like to encourage U.S companies to export and invest abroad.

First, comes a cut in the top tax rate for all businesses to 15%, far below the current 35% top rate. This reduction is not imbalanced since it would also benefit the owners and shareholders of international corporations in the United States. With this tax cut, companies, especially manufacturers, can lower the price of exports and have more money for R&D and marketing. This measure will greatly enhance the competitiveness of U.S goods in the global market. Also, a tax reduction will significantly reduce the financial constraint on companies and allow American companies to seek investment opportunities on a global scale.

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US Companies Buying US Plants from Russian Steelmaker Severstal

Severstal announced on Monday the sale of its North American plants to U.S. companies for a total of $2.3 billion.

Severstal is selling Severstal Columbus (Mississippi) to Steel Dynamics and Severstal Dearborn (Michigan) to AK Steel Corp., the company said.

AK Steel said separately that its acquisition was worth $700 million.

The sale would be completed “by year-end 2014,” Severstal’s said.

“The work to prepare and sign the agreements to sell the assets was launched in the end of 2013 and has now been successfully finalized,” it said.

Severstal specializes in steel for the auto sector and household goods and is controlled by billionaire Alexei Mordashov.

The company had explained its disposal of foreign assets as a cost-cutting move, but the final sale also comes amid the worsening standoff over Ukraine between Moscow and Washington, which last week introduced its toughest round of sanctions yet against Russian companies.

Kommersant daily said on Monday that Severstal was particularly at risk of being hit eventually by sanctions because Mordashov iwas also a stakeholder in Bank Rossiya, a Russian bank put on the Treasury’s blacklist in March.

Last week Severstal also announced that it was selling its U.S. coal producer PBS Coal to Canadian Corsa Coal Corp. for $140 million by the end of August.

Copyright Agence France-Presse, 2014

Companies and their Economic Power

The size and scope of global corporations in the 21st century is enormous.  Global corporations have vast reach and economic power. For example, the Coca Cola Company sells it branded products in over 200 countries and Procter & Gamble estimates that 4 billion of the world’s 7 billion people buy P&G brands in 180 countries every year.   A recent Georgetown University study showed that if one were to equate the annual revenues of the largest global corporations with the size of the world’s leading economies, many firms would rank among the top economic powers.  Wal-Mart Stores, with 2010 revenues of approximately $422 billion would rank as the 23rd largest economy in the world, ahead of countries like Norway and Venezuela.  Royal Dutch Shell would rank 26th ahead of Austria, Saudi Arabia, Argentina, and South Africa.  Exxon Mobil would rank 31st ahead of Iran, Thailand, and Denmark.  BP would rank 35th ahead of Greece.  This analysis also revealed that 45 companies would be listed among the top 100 economies.

Of course, the balance of power within a national territory tends to come out on side of the government – in a neck on neck contest, national sovereignty typically wins. This is mainly the case when it comes to the ‘big’ picture – whether or not a country should recognize Cuba or whether certain merchandise should be subject to embargoes or sanctions. The small issues, such as, should our products be adapted to a new market abroad and at what price, tend to be overwhelmingly decided by corporations. Therefore, at this macro level, companies exert major power.

Special thanks to Charles Skuba.

Sources:

World Bank,Gross Domestic Product 2010,  http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf, and Fortune Global 500 2011, http://money.cnn.com/magazines/fortune/global500/2011/full_list/, accessed January 27, 2012, Analysis by Charles J. Skuba and Joao Almeida, Georgetown University McDonough School of Business, January 2012