Trade and Multinational Companies: A Comprehensive Analysis

This report provides a comprehensive analysis of free trade and its effects on multinational companies. It begins with an introduction to free trade, defining its principles and highlighting the theories of comparative advantage and mercantilism. The literature review explores various perspectives on free trade, including its benefits like lower consumer prices and increased exports, as well as its drawbacks such as potential industry adjustments and increased transaction costs. The analysis and discussion section focuses on the impact of COVID-19 on international trade, detailing the decline in exports, disruptions in supply chains, and the overall negative effects on global trade volume. The report concludes by summarizing the key findings and implications of free trade in the context of current global challenges, emphasizing the complexities and uncertainties faced by multinational companies and international trade initiatives.

Trade and
Multinational
companies

Table of Contents
INTRODUCTION ..........................................................................................................................3
LITERATURE REVIEW................................................................................................................3
ANALYSIS AND DISCUSSION...................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Free trade refers to a plan of action through which government don't distinguish against
any kind of import or with respect to exports by applying any kind of tarriffs with respect to
imports or any kind of subsidy with respect to exports. According to free trade argument, the
labour which is divided across countries will led to better efficiency as well as high production.
It is also defined as a free market idea which is defined as a international trade. Free trade
argument is done between multiple nations to deduct obstacles with respect to imports and
exports. When a free trade policy is applied the products which are dealing in export and
imports and are bought and sold across different countries have less or even no government
taxes, subsidies or forbid to conquer their exchange. By applying free trade policy, a formal
agreement is made between nations which implies no trade restrictions. Free trade argument is
also known as the concept of “ Laissez-faire” trade (Meardi, 2018). There are two theories due to
which free trade policy initiated; comparitive advantage and mercantilism. Comparitive
advantage means means country power to produce products as well as services at low cost in
comparison to other countries. Mercantilism means increasing revenue by exporting all products
and services. The main objective of free trade agreement is to reduce obstacles to U.S exports,
protect U.S interests with respect to competition with other international countries and increase
the law in free trade argument of countries. The below report discusses about literature review of
free trade argument, analysis as well as discussion about free trade and conclusion.
LITERATURE REVIEW
From the view point of Tejvan Pettinger, free trade lead to less price for consumers,
increase in exports and receive an advantage from economy of scale as well as high choice of
goods. Free trade policy is beneficial due to many reasons like comparitive advantage, increase
in exports, economies of scale, increase in competition. Due to comparitive advantage, the
countries which have less opportunity cost, the economic welfare for all other countries gets
increased. Due to policy of free trade, it modifies countries to specialise in those products which
have competitive advantage (Young, 2019). Free trade agreement is also beneficial for
consumers who are engage in importing products and companies who are dealing in exporting
goods and as UK has comparitive advantage will lead to betterment in welfare of economy. Due
to concept of economy of scale, it is beneficial because it lead to less price for consumers which

ultimately lead to high efficiency in exporting. If competition gets increased, there will be more
efficiency and more bonuses for cutting costs and it helps in preventing domestic monopoly by
charging hogh prices. From the view point of Nipun S, free trade policy, free trade agreement
also increases world production as well as world consumption, gets linked with other countries,
lead to high earning in factor of production, high efficiency and better utilisation of resources.
From the concept of increase in world production as well as world consumption, international
trade ensures firms to take full benefit of large scale production. If free trade policy would not be
there there will be some products which will produce only in home country due to which firm
will not be able to take appropriate benefit of production at a large scale. So, due to free trade
agreement the world production gets increased as well as world consumption for international
trade products as goods are produced at low cost (Dechezleprêtre and et.al, 2019). When link and
relation is maintained with other country then it leads to increase in knowledge, different ideas as
well as culture which lead to enhancement in understanding across nations and decrease
possibilty of problems. Free trade agreement also lead high efficiency and countries which are
engages in production of those products which has high advantage. From the view point of
Kimberly Amadeo, There are two costs of free trade agreement; the potential costs of
adjustment in industry and possibilty that due to more varieties, transaction costs will increase. If
there is movement in free trade argument, there need to be an adjustment in firms for both
countries. When output of firm increases, the efficiency also gets increased. The costs include
opportunity cost for lost production, search costs which are connected with concept of finding
new jobs, costs of moving and so on. With respect to assumption of standard model, the
transition occurs immendiately and with no costs. The second cost arises when more variety is
favoured by consumers. In this model, it is assumed that consumers have all knowledge about
prices as well as characterstics of goods which they need to purchase but with respect to reality
consumers spend some time as well as money to get information about products. Free trade
agreements not only deduct or even eliminate taxes but also help in encouraging investment as
well as improve all rules. It promotes economic integration as well as build shared approaches to
free trade and supports strong people-to-people as well as business links which also enhance
relationships (Rodrik, 2018). Around more than half of reacting firms it led to increase in their
sales dealing with exports which was a major advantage for them. From the view point of David
Noah, Free trade agreement promotes trade as well as increase competition. As competition gets

increased between domestic as well as foreign producers which leads to all productive businesses
to enhance their opportunities on international level as well as cost savings with respect to more
economy of scale. Free trade agreement also leads to job creation as well as certain economic
benefits to all type of businesses. Due to increase in comeptition resources are produced more
efficiently and productivity of businesses gets increased. Due to rise in productivity economic
output gets increased as well as rise in wages are done. The US economy also grows because of
free trade agreement. They have raised flows of foreign direct investment by enhancing US
investment in other countries (Lund and Tyson, 2018). From the view point of Nick Robinson,
there are certain other advantages also by implying free trade agreements like increase in
economic efficiency, decline in corruption, reduction in war. Due to free trade agreement,
economic efficiency got increased as prices reduced which was beneficial for everyone. Trade
creates many obstacles which lead to political corruption but due to agreement of free trade
businesses were receiving many benefits and weree becoming established entreprenure. The
major advantage which is considered of free trade agreement is reduction in war as free trade
encourage different countries to be dependent on each other for various services including food.
Due to this interdependence, wars got reduced and no business want to take risks. There were
many other costs also with respect to free trade agreement like moral and ethical costs,
environmental costs, costs of external influence.
According to context of Donald J. Boudreaux, 2018, it is understand by management that
task are increasing and it include possibilities that is used for managing and imposing tariffs and
limiting freedom to manage trade at international level. This also reflects about arguments which
stay together for performing work with more efficiency. Along with this it also states about free
international trade that often develop and manage benefits by developing common perception
and it support organisation to perform work with impose quotas and tariffs that is used to manage
barrier related with trade activities. It also demonstrate free trade support small organisation to
purchase and sale products from different market (Beugelsdijk and Jindra,2018). Similarly, some
challenges are also faced by management due to free trade and it refer that foreign competition is
faced by companies which results in saturation and decreasing of market size for local segment.
Further, restriction on foreign trade often generate problems for organisation and it harms
persons because size to protect business is weak. This results lack of relation between same

organisation create problems for management to manage and complete task as it impact on
market of company.
ANALYSIS AND DISCUSSION
Due to Covid-19, international trade got affected very much. Covid-19 is a very uncertain
situation and has spread across the globe which made situation of international trade worse. Due
to Covid-19, chinese exports got declined upto 40% which is a major drop in international trade.
As covid-19 got spread very fast so government while taking certain measures for doing
international trade led to many problems. There are many productive activities which got
affected and interrupted in Asia, Europe , North America and across whole world. Due to these
consequences, demand for goods declined. According to research, it was analysed that volume of
global trade decreased by 17.7% in may 2020 in comparison to percent in 2019. The major
impact was on transport as well as travel due to which international trade got affected. With
respect to recent situations, national economies got shut down. All nations suffered double digit
declination in exports as well as import. Due to covid-19 epidemic, transportation as well as
travel got banned, economic activities got stopped (Oelze and Habisch, 2018). As nations got
affected in a very bad way and consumers are not spending much due to which imports demand
was not taking place from china. It was also seen that approx 60 countries restricted exports for
products. Due to decilne in supply, the effect on economy has led impact on international trade.
Through supply chain, economic activity got declined which led to deduction in imports as well
as exports due to which trade and economic activity of exporters got affected in a negative way.
2020 has been most difficult year for international trade and has wiped out a strong global
upturn. Due to supply and demand shock, global recession got increased which affected both
export as well as demand for imports. The impact of Covid-19, has increased transportation cost
which led to strict rules as well as nations found it expensive to get required imported inputs
from hard hit nations and demand got interrupted due to reduction in demand and purchase
delays. Covid-19 has affected supply as well as demand of global economy. Due to disturbance
in supply chains nations have decreased their production. The most affected were international
tourism as well as container shipping (Rosenbohm and Haipeter, 2019). The demand side in
international trade got affected because consumers are not spending their money as they have
fear regarding loss of income because covid is a vary uncertain situation. With respect to
situation of covid -19 it is seen that there will be continuous reduction in volume of international

trade. It has reduced progress of international trade across whole world as all nations are
suffereing from pandemic. The covid -19 has shown clear benefits that come up with costs.
Covid- 19 is a humanitarian crisis on global scale and it impacts on the organisation that perform
work on international level. It also refers that human scale and health system generate tragedy
due to which this is challenging for management to set as well as develop income of countries.
According to the concept of international trade, supply side got affected as covid was focusing
on world's maunfacturing area and was scattering fast in other countries also. There were direct
supply shocks through which less affected nations were found it difficult as well as expensive.
Due to social interruptions caused by Covid-19, international trade and development led to USD
6 trillion in loss of global trade which is approx 50% more than the reduction in trade which
happened in 2008. Covid-19 has reduced progress of different international trade initiatives
across the globe as all countries are facing covid crisis (Holm and et.al,2020). Those nations
which specialize in one particular product lead to unexpected weakness sue to which supply
chain gets break down and has affected both individual companies as well as global system of
disruption. With respect to impact on UK trade, the total trade faced a loss in their import as well
as exports of around £33.1 billion. Covid-19 has also affected international trade with respect to
increasing prices. As demands are getting low and restrictions on travel are more the prices also
got increased. The impact of covid-19 has affected cruise shipping also due to which many
orders got cancelled and led to reduction in demand because on less travelling. Due to negative
impact stress on logical sector increased and brexit situation was already there which made
situation more worse. Covid -19 also increased logistical problems as shipping companies in
China were forced to deduct their seaborne vessels. So, as international trade got so much
affected in a negative way, different advices are given like to pay attention on control measures,
conducting communication as well as effective consultation, pay attention on new policies to
avoid risks. Covid-19 led to economic loss at high rate which are not at all interrelated with
helath impact. With respect to transportation side, there was no passenger aircraft which was
flying among geographies due to which around 200000 flights got cancelled between Europe and
United states. In context with UK, they faced economic impact on their trade and investment.
The world trade organisation assumed a contraction in internation trade around 13-32% which
was dependent on pessimistic scenarios (Andrenelli and et.al, 2018). Covid-19 also lead to
supply, demand as well as policy shock for foreign direct investment which led to fall in

international trade on negative basis. Due to reduction in existing investment projects uncertainty
in economy got increased and new restrictions by government too place which led to conflicts
and affect international trade.
CONCLUSION
From the above analysis it is concluded that, free trade agreement is very much beneficial
because it lead to better effciency as well as high rate of production. It leads to increase in
exports, competititon as well as economies of scale. As international trade or free trade
agreement takes place the world consumption gets increased and companies work on large scale
production. If there will no free trade agreeement then almost all products will be sold in home
country only due to which firms will not be able to take good advantage from that specific
policy. Due to free trade agreement the products are also produced at low cost and as there is a
concept of international trade, so it is beneficial for firm because relations are maintained with
different countries and various ideas and knowledge gets increased. International trade also got
affected due to huge rise of coranavirus, as consumers are now spending less amount due to
which international trade is getting affected in a negative way. It has affected both demand as
well as supply economy. Due to interruption in supply chain the imports as well as exports got
disturbed.

REFERENCES
Books and Journals
Andrenelli, A., and et.al, 2018. Multinational production and trade in services.
Beugelsdijk, S. and Jindra, B., 2018. Product innovation and decision-making autonomy in
subsidiaries of multinational companies.Journal of World Business,53(4), pp.529-539.
Dechezleprêtre, A., and et.al, 2019. Searching for carbon leaks in multinational companies.
Haipeter, T., Hertwig, M. and Rosenbohm, S., 2018.Employee Representation in Multinational
Companies: The Articulation of Interests in Multilevel Action Fields. Springer.
Holm, J.R., and et.al,2020. Labor mobility from R&D-intensive multinational companies:
implications for knowledge and technology transfer.The Journal of Technology Transfer,
pp.1-23.
Lund, S. and Tyson, L., 2018. Globalization is not in retreat: Digital technology and the future of
trade.Foreign Aff.,97, p.130.
Meardi, G., 2018.Trade Union Activists, East and West: Comparisons in Multinational
Companies: Comparisons in Multinational Companies. Routledge.
Obara, L.J. and Peattie, K., 2018. Bridging the great divide? Making sense of the human rights-
CSR relationship in UK multinational companies.Journal of World Business,53(6),
pp.781-793.
Oelze, N. and Habisch, A., 2018. Responsible supply chain implementation-Are multinational
companies gods and small and medium sized enterprises oxen?Journal of Cleaner
Production,179, pp.738-752.
Rodrik, D., 2018. What do trade agreements really do?.Journal of economic perspectives,32(2),
pp.73-90.
Rosenbohm, S. and Haipeter, T., 2019. German board-level employee representation in
multinational companies: Patterns of transnational articulation.European Journal of
Industrial Relations,25(3), pp.219-232.
Young, A., 2019.The sogo shosha: Japan's multinational trading companies. Routledge.