In business, trade is a big word. Not in the sense of how you spell it, but rather how we use it, as there are many compartments to trading with different countries. From exports, to labor, to production and prices, trade isn’t just the exchanging of goods. Lets break it down and use the example of clothing.
The Trump administration is attempting to lower imports in order to rebalance trade after decades of U.S. neglect toward economic relationships around the world. Rebalancing should not only be done by applying the stick of import reductions, but also by export promotion.
Exports make a firm’s markets grow and change its home nation’s currency value. When U.S. exports increase, the dollar typically goes up in value.Shrinking exports tend to weaken the dollar. Exports also shape public opinion of globalization and offer the opportunity for economies of scale.Higher production volume often means a lower cost of production.Since high exports also make imports cheaper, a firm may achieve lower costs and higher profits, both at home and abroad, through exports.
There have been many debates regarding the positive and negative effects of foreign direct investment with the host government caught in a love-hate relationship. On the one hand, the host country has to appreciate the various contributions , especially economic, that foreign direct investment can make. On the other, allowing investments from abroad gives rise to fears of dominance, interference, and dependence.
- Improved capital flows
- Technology transfer
- Regional development
- Increased competition that benefits the economy
- Favorable balance of payments
- Increased employment opportunities
Capital inflows that result from foreign direct investment benefit all countries by making more resources available, but it particularly benefits those nations with limited domestic sources and restricted opportunities to raise funds in the world’s capital markets. Jobs are often the most obvious reason to cheer about foreign direct investment. For example, U.S. subsidiaries of global companies employ 5.3 million Americans, about 4.7 percent of private sector employment, and support an annual payroll of $408 billion.
The combined effects of all the benefits accruing from foreign direct investment can lead to overall improvements in the standard of living in the host country, as well as increasing its access to and competitiveness in world markets.
- Low levels of research and development
- Risk of increase capital outflows
- Stifling of domestic competition and entrepreneurship
- Erosion of host culture
- Disruption of domestic business practices
- Risk of interference by foreign governments
From an economic perspective, capital inflows resulting from foreign direct investment are often accompanied by higher, longer term outflows that do not benefit the host government. For example, when multinational chains built hotels in the Caribbean, the shortage of local suppliers meant that much-needed foreign currency was spent on imported supplies. In other cases, multinationals prefer to use existing suppliers in their own countries rather than develop local supplier networks. Another frequent complaint is that investors fail to follow though on their promises.
Multinational companies are, by definition, change agents. That is, the products and services they generate and market bring about change in the lifestyles of consumers in the host country. For example, the introduction of fast-food restaurants to Taiwan dramatically altered eating patterns, especially of teenagers, who make these outlets extremely popular and profitable. Concern has been expressed about the impact on family life and the higher relative cost of eating in such establishments.
This is an excerpt from the book by: Michael R Czinkota, Ilkka A Ronkainen, and Michael H. Moffett. Fundamentals of International Business (New York: Wessex, 2015), 60.
Effects of the US government shutdown are made to be felt throughout the economy. Furloughed employees are no longer working at all, military commissaries are closed indefinitely and government funded websites are no longer running. Many of these curtailments are unnecessary and designed to foment discontent.
One positive example is the website of he United States Trade Representative. It states:
“Due to lapse in funding, the USTR website will remain live, but without updates, for the duration of the government shutdown.”
There needs to be respect for the budget responsibility of the U.S. House of Representatives -but there also exists a requirement for the fiduciary duty of government financial recipients to stretch resources the furthest length possible and to devise innovative ways to continue as much work and service as at all possible.
Budget disputes should not become a cause to demonstrate worst possible outcomes. Offices which fall prey to partisanship in the budget dispute run the risk for themselves and their constituents that long memories it might lead to transformational budget changes for them
Post your thoughts in the comment section below!
One of the major topics during this week’s G20 summit is the continued fight against global trade protectionism. Leaders vowed to limit protectionist actions and encourage trade to aid the global economic recovery. However, as a new European Commission report details, over 150 new trade restrictions were implemented throughout the world just last year and only 18 have been resolved.
The report highlights:
- “Brazil, Argentina, Russia and Ukraine stand out for having applied the heaviest tariff increases”
- “Brazil accounted for more than one-third of restrictions related to government procurement, followed by Argentina and India.”
- “The EU’s partners have also continued applying stimulus measures, in particular supporting exports”
- Some countries are protecting their domestic industries from foreign competition, Brazil and India are most notable.
To read more please click here.
What is your take on trade protectionism? Post your opinion in the comment section below!