Principles of Economics Donald Trump

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.Donald Trump dislikes big firms because of the profit and business nature. In his view, tax policy for the multinational corporation is complicated. The multinational corporation takes the extra profit at home when tax rate is low. Furthermore, high tax rate negatively affect their business policies and the cross-border supply chain. Trump dislikes the outsourcing of manufacturing process that is done by the multinational corporations in china or elsewhere (economist.com 2017). Donald Trump planned to impose higher tax rate on the US based multinational corporations to repatriate foreign earning in US. As he was against the trade rule, he decided to disappoint NAFTA, the trade deal between US, CANADA and Mexico. However, later Trump had a tax reform plan, where corporation tax would be slashed to encourage business firm to send back profits to US. New policies are planned to encourage domestic business firm to make profit instead of MNCs (Capri 2017). The policy had been planned to boost up economic growth through increasing capital inflows. The capital can be invested for developing infrastructure for any productive purpose. US economy has been experiencing slower growth rate after global financial crisis. Capital inflow may increase investment and production in different sector of the economy. Economic growth can boost up aggregate demand of US consumers. 2. The growth of multinational corporations started during early 1990s. The key factor for the growth of MNCs is global economies of scale. MNCs make joint venture with companies in other country. As discussed by Taylor and Thrift (2012), agreements are made regarding division of production, recruitment of employees, use of resources, market and others. Due to economies of scale and the big size, the companies can affect government policies significantly in terms of employment, production, tax rate. The MNCs can use resources of the host country at a cheap rate to make enormous profit. These companies often get tax break in order to encourage economic activities.Economies of scale and production efficiency provide them the economic power in the global market as they can reap profit at a lower cost because of the facility of outsourcing. 3. Arbitrage is the purchase or sale of same product simultaneously in different markets. Firms use the method of arbitrage to make increasing profits by taking advantage of different prices for same asset. In the context of US economy, the local firm can copy or use technology, ideas acquired by the global firms in order to bring innovation in their business (economist 2017.com). Innovation can increase brand value of the domestic firms in the global market and may increase prospect of the export from US economy. As per the article, innovation in business reduces the cost of building costly office and factory abroad. As stated by Dewhurst, Harris and Heywood (2012), domestic firms can bring efficiency in production and global supply-chain management process through the innovation. Efficient production brings economies of scale in domestic production and facilitates terms of trade. Reduction in corporation tax rate on the profit earned by domestic firm facilitates the local firms in making profit. References Capri, A., 2017. Forbes Welcome. Available at: https://www.forbes.com/sites/alexcapri/2016/12/22/2017-is-going-to-be-a-disruptive-year-for-u-s-multinational-firms-thanks-to-trump/#605580803c56 [Accessed 16 Feb. 2017]. Dewhurst, M., Harris, J. and Heywood, S. 2012. The global companys challenge. Available at: https://www.mckinsey.com/business-functions/organization/our-insights/the-global-companys-challenge [Accessed 16 Feb. 2017]. economist.com 2017. The multinational company is in trouble Available at: https://www.economist.com/news/leaders/21715660-global-firms-are-surprisingly-vulnerable-attack-multinational-company-trouble [Accessed 16 Feb. 2017]. Taylor, M. and Thrift, N., 2012.The geography of multinationals: Studies in the spatial development and economic consequences of multinational corporations(Vol. 37). Routledge.