ECS4580 Coursework: Free Trade and Multinational Enterprise Analysis

This report delves into the concept of free trade, examining its principles and benefits, such as economic growth, foreign investment opportunities, and lower consumer costs. It provides a comprehensive literature review, discussing the arguments for and against free trade, including the impact of government policies and the role of multinational companies. The analysis section focuses on the significant effects of the COVID-19 pandemic on international trade, detailing supply chain disruptions, changes in consumer behavior, and the fluctuating demand and supply of products and services. The report also explores the impact on foreign direct investments and the evolving strategies of businesses in response to the pandemic. The conclusion summarizes the key findings and highlights the importance of adapting to the changing landscape of international trade in a post-pandemic world.

Trade and multinational
enterprise

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
LITERATURE REVIEW................................................................................................................3
ANALYSIS AND DISSCUSION...................................................................................................6
Impact of Covid-19 on international trade...................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
Books and Journals......................................................................................................................9
Online........................................................................................................................................10

INTRODUCTION
Free trade is when there is total absence of government related policies which restricts
import and export of the goods and services between countries. Economists believe that trade
among nation is the foundation of building healthy global economy among different countries.
Implementing free trade policies has been a success (Panagariya, 2019). Free trade argument is a
treaty between two or more nations agreeing to reduce any obstruction to imports and exports of
goods and services among them. Free trade arguments are made to encourage local organisations
to be more competitive and become less dependent on government subsidies. This helps in
growth in the country’s economy while less government expenses. International economics
enclose various types of important sub areas which are put out of place from one another (Irwin,
2020). There are many international trade approaches for a multinational company which is
explained in detailed.
LITERATURE REVIEW
Free trade is a theoretical policy beneath which government has no tariffs, taxes and
duties on the import and exports. Free trade can be considered as opposite to what protectionism
holds which is a form of defensive trade policy to avoid the chances of having foreign
competition. Free trade facilitates lower prices for the customers and increased exports (Ehrlich,
2018). IT allows the countries to have access to large area of markets all around the world. It is a
process which can lead to opportunities of entering into new markets and improving the
economy charts of many countries. There are several benefits from the economies and variety of
choice of goods. These are:
Creates economic growth opportunities: Free trade has helps many countries to increase
their economic percentage per year which would not be possible to do otherwise. Each nation
gets a profit of manufacturing, commercial, and building industrial strength in their economy
when the countries are allowed to move products and services freely across the borders as by the
agreement (Doan, and Xing, 2018). There is more stress on lower costs happening with each
transaction. The prices are lower for these products and helps in maintain healthy competition
within the market. Specialising in goods at the locations where the opportunity cost is low leads
to increase in economic welfare for many countries. Therefore, even with limited set of rules and

restrictions such as tariffs, all the countries which are involved to be likely to have a greater
economic growth.
More opportunities for foreign investment: When the countries removes their fences
and allows free trading then this attracts more companies to invest in the country (Wendel,
2019). There are new investments, formation of new partnerships and collaborations. This
approach allows developing and opening a window for new opportunities in the market of any
size. This means that the associated country can aim on forming deeper and meaningful relations
with the governments of other countries which share the same point of view of today’s world.
When there is no trade restrictions then companies are interested in flowing their money in local
businesses helping them to expand (Besteman, 2020). Countries which share their borders with
others can use free trading to have a better standard of living and avoiding any war situations
with someone being an economic partner to them.
Lower taxes paid by consumers and businesses: Addition of tax and investment
security in free trade contract helps in securing the interests of local business owners in much
more effective way. Where these guards are let down then the situation becomes favourable to
the consumers as there are good chances of having more competition from the agencies present
around the globe at the level of consumption (Pomeranz, 2021). This develops and advantage as
it helps in reducing stagnation inside the working market but at the risk of eradicating small
businesses all together. Having fewer assessments and very few restrictions on entering will lead
to reduce price of the products for their customers.
Less government expenditure: Many local and domestic companies receive benefits
from government, mostly financial benefits such as in the agricultural industry including
farming. This money from the government to the producer is from the pocket of tax payers to
counter the influence of tariffs on the import and export markets. Following the best practices
and creating new proficiency in the domestic and local working systems can help in making use
of less government money in order to keep the products at affordable prices in local level.
Because of this, the revenue coming from the tax will be used for other infrastructure needs,
social programs, defence and other requirements for developing the country without having any
unprofitable business ventures to run.
Forming better goods: In the free trading process, every market can have access to high
quality goods at affordable and low prices. Cheaper rates in the imports helps in solving the

problems due to inflation rate while developing relations with other countries. Prices comes
down by few percentage in the imports market which come from the countries having lower
income level than the host country. Requirement of innovation in the country means the
businesses are interested in solving issues of the customers in an advanced way and are being
active in doing so. In addition to this, domestic businesses can gain admittance into latest
technologies by partnering with multinational companies.
Helps the people who work by spending less: People believe that a country can do
economically well when it allows exporting more goods and services to different nations. The
major point of economic reality in free trading is that it reflects the prosperity gained from this
level of import and exports in the country (Poudel, and et.al., 2020). When the people coming
under the lower level of the national income margin spend more money then because of that
complete social economy is benefitted. This proves the importance of removing tariffs and
making it a critical part of the process. When more people from a country can buy cheap imports
then it promotes other countries to invest in them.
Creates more opportunities for workers having associated skills: Many companies
works in other countries and import to their home country as the tariff policies were favourable
to them. This issue can also be a con as this takes away job opportunities from home country but
it gives the company chance to hire workers from anywhere in the world having the desired skills
and expertise. This helps in having low expenses in the manufacturing process and maintains the
level of prices for the products and services appropriate to competitive level. Multiple economies
from around the globe can benefit from this method.
Access to resources: Free trade agreements allow many opportunities to grown for
people who can produce successful outcomes with no restrictions. This allows people to pursue
what they wish to when their country’s economy is based on this principle (Advantages and
disadvantages of free trades, 2021). It allows a whole lot of healthy competition as a primary
driver to possibilities of local communities. Everyone can be what always wanted to be and reach
their goals with very less economic restrictions which come with this opportunity.

ANALYSIS AND DISSCUSION
Impact of Covid-19 on international trade
Covid-19 has made some major effects on changing International trade over time. There
are mostly negative effects of Covid-19 on international trade of both export and import from
and within the countries. There were many influences within different industries such as non
essential and durable products can be struck by losses in the industry for long time, and
industries such which supplying medical products were seen to be positively affected by the
impacts of Covid-19 (Aday, and Aday, 2020). Because of this virus spread many countries have
imposed restrictions on businesses and many have imposed lockdowns in complete nationwide.
Overcoming from the first wave, companies tried to regain their growth but some countries were
still impacted from the second wave. But many companies have learned to and evolved
accordingly bringing changes in their social and economical activities to sustain during this
pandemic period.
It is predicted that Covid-19 pandemic has brought some major disruptions to the global
economy and international trade because productions and consumption were scaled back all
around the world. The pandemic has restricted transaction of both supply and demand. The
problems which arise from the rise of pandemic include, less access to medical supplies, less
budget due to reduced tariffs and taxes and therefore there is a downfall in the economic
activities. In cases this lead to recession, threat to social safety, employment issues and food
security. Moreover, in many situations has lead to some benefits which includes the clean
environment. There is a lot of pressure among the market to liberalise rules on trading and
encouraging the healing of economy (Ozili, and Arun, 2020). The factors in International trading
which were affected by Covid-19 were supply chains, consumption behaviours, demand and
supply of products and services and some of the foreign direct investments.
Supply chain in the international trade is interrupted by Covid-19. Availability and
supply of large variety of raw materials, transition goods and finished products have been
disrupted in major quantities. Global supply chains have shown maximum level of resilience
against many types of disruptions in the last few years and have compromised in various factors.
Research shows that Covid-19 has given rise to many unpredictable scenarios leading to
disruptions in the process of global supply chains such as pharmaceutical companies, food,
electronic items, and mainly, automotive industry and so on. There is a major turbulence in the

stages of supply chains. Manufacturing was affected as there was less availability of raw
materials this lead to delays in processing the material. Transport was shut down due to
impositions of nationwide lockdowns in many countries (Baldwin, and Tomiura, 2020). Analysis
done states that enhancing the resistance in supply chains can help in reducing losses and survive
in these disruptive times. Further analysis shows that global supply chains will become shorter
by introducing new strategies and focusing more on relocations and back-shoring.
Consumers were more forced to change their behaviour and companies to update their
business models while government adjust the regulations (Consumer demand recovery and
lasting effects of Covid-19, 2021). Entertainment, retail and fashion and beauty companies were
asked to be closed to avoid having any kind of physical contact. This step was taken in benefit
for the community but resulted in economy fall down. This closure resulted in businesses
suffering from financial loss or operational challenges as there was lack of demand and supply
for the required products and services. Supply and demand is related closely to the concept that
value of a product will increase if it has low supply and more demand. This type of need for
demand was all becoming in excess during the pandemic outbreak (Sharma, S.C., Gupta, P. and
Gupta, R., 2020). During the lockdown phase demand for essential items increased such as food,
toiletries, and dairy products and so on and these all were in low supply. So eventually the
supply decreased and demand were increased which helped the businesses to make high profits.
However, non essential businesses were in deep loss. They were considered as luxury products in
the changing income time period of people such as salary deduction and unemployment.
Foreign direct investments are part of the economic globalisation. It is being expected
that foreign direct investments will contract affecting all sectors. FDI contractions can be
identified from consumer cyclical for examples airlines, hotels and leisure industries along with
manufacturing industries and energy sector. These changes in FDI are going to have a major hit
on developing countries and supposed to drop even more on a global level (MUTAMBARA, and
BHEBHE, 2019). The sectors which are impacted from Covid-19 makes up for large pat in FDI
inflows specially in developing countries. Many developing countries have become more
dependent on FDI over past few years. Increase in FDI is forming a rising situation of off-
shoring and global fragmentation of many economic activities for the developing countries. This
was mainly in manufacturing and service sector. Impact of Covid-19 on FDI will be concentrated
in the countries which were negatively hit by the pandemic. Foreign direct investment is likely to

fall more in the current year under this present scenario demanding for success in public health
and support for economy and related policy measures which are taken by government. Covid-19
has resulted the market into a recession. FDI plays a vital role in supporting economies during
the time of a crisis such as the current pandemic situation. Financial needs are to fulfilled and
assisting government in dealing with pandemic with the help of some local firms. FDI could
remain under the decline levels if public health and economic support policies are not effective
in any way (Boudreaux, and Ghei, 2017). Many government have taken certain measures to
prevent the spread of Covid-19 pandemic and these public health measures have caused a lot of
economic destructions which have in turn affected FDI. Multinational firms work on larger scale
and are more productive than domestic firms, these are helping the government to deal with the
current situation with attracting and facilitating Foreign direct investments. This combines with
working with clients and using local networks to facilitate the business and forming
collaborations which will help in assisting the government to overcome the effects of pandemic.
CONCLUSION
It can be evaluated from the report that free trade can be very helpful in many reasons.
Having no restriction on import and export duties will help in increasing the country’s economy
while also helping the population in several other ways. A country which allows free trade
agreements can be have a window open full of opportunities. It will also encourage other
international companies to invest in a country following free trade. When looking the
international trade of current situation, it can be concluded that Covid-19 has left no one and has
shown its adverse effects on the elements which include global supply chain, need for demands
and even foreign direct investments in international trading. While some industries have made
profits from this pandemic situation, many other industries have taken a deep fall.

REFERENCES
Books and Journals
Aday, S. and Aday, M.S., 2020. Impact of COVID-19 on the food supply chain. Food Quality
and Safety. 4(4). pp.167-180.
Baldwin, R. and Tomiura, E., 2020. Thinking ahead about the trade impact of COVID-
19. Economics in the Time of COVID-19. 59.
Besteman, C., 2020. INTRODUCTION. THE ARGUMENT. In Militarized Global
Apartheid (pp. 1-20). Duke University Press.
Boudreaux, D.J. and Ghei, N., 2017. The Benefits of Free Trade: Addressing Key Myths. Trade
and Immigration| Policy Briefs| May. 23. p.2018.
Doan, T.N. and Xing, Y., 2018. Trade efficiency, free trade agreements and rules of
origin. Journal of Asian Economics. 55. pp.33-41.
Ehrlich, S.D., 2018. The politics of fair trade: Moving beyond free trade and protection. Oxford
University Press.
Irwin, D.A., 2020. Free trade under fire. Princeton University Press.
MUTAMBARA, T. and BHEBHE, N., 2019. The proposed Tripartite Free Trade Area:
Challenges and expected benefits. South Africa: Rhodes University.
Ozili, P.K. and Arun, T., 2020. Spillover of COVID-19: impact on the Global
Economy. Available at SSRN 3562570.
Panagariya, A., 2019. Free Trade and Prosperity: How Openness Helps the Developing
Countries Grow Richer and Combat Poverty. Oxford University Press.
Pomeranz, K., 2021. Comparisons, Connections, and the Structure of the Argument. In The
Great Divergence (pp. 24-25). Princeton University Press.
Poudel, P.B and et.al., 2020. COVID-19 and its Global Impact on Food and Agriculture. Journal
of Biology and Today’s World. 9(5). p.221.
Sharma, S.C., Gupta, P. and Gupta, R., 2020. A COMPARATIVE ANALYSIS OF THE
BENEFITS OF FREE TRADE AGREEMENTS ON FDI, BETWEEN DEVELOPED
COUNTRIES & DEVELOPING COUNTRIES. International Journal of Management
(IJM). 11(12).
Wendel, A., 2019. The argument for free trade. Imaging and Machine Vision Europe. (91). pp.6-
7.
Online
Advantages and disadvantages of free trades, 2021. [Online]. Accessed through :<
https://futureofworking.com/6-advantages-and-disadvantages-of-free-trade/>
Consumer demand recovery and lasting effects of Covid-19, 2021. [Online]. Accessed
through :< https://www.mckinsey.com/industries/consumer-packaged-goods/our-
insights/the-consumer-demand-recovery-and-lasting-effects-of-covid-19#>