Global Economy: Strategic Considerations, Trade, and Monetary Policy

This report provides an in-depth analysis of the global economy, focusing on the evolving dynamics of international trade and global supply chains. It examines how strategic considerations, such as government policies and market efficiency, are reshaping trade patterns and leading to market fragmentation. The report also evaluates the efficacy of monetary policies implemented by central banks over the last few decades, exploring the reasons behind policy reviews and the impact of tools like interest rate adjustments and balance sheet management. Furthermore, it delves into the obsolescence of traditional trade theories in light of modern trade practices and technological advancements, such as globalization and digitalization. The report highlights the influence of globalization and technological developments on international trade and global supply chains and also discusses the impact of such strategic considerations on economic growth and income inequality.

GLOBAL
ECONOMY
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INTRODUCTION
Global economy is the economy that consist sum of all international trade and exchange
of products and service between different countries in monetary terms. This report discuss about
two main topic that strategic consideration are changing international trade and global supply
chain which lead to fragmentation of market economy and making traditional trade theory
obsolete. It also evaluates efficacy of monetary policies over last decades and reason why
central banks are reviewing their policies.
1 Impact of strategic consideration on changing international trade and global chain supply
International trade is known’s as trade between two and more countries or exchanges of
products and services as there are limited resource in environment so international trade helps
each country to get sufficient products in order to satisfy need of people. effective and strong
global chain supply helps in delivery of product and services across worldwide within limited
time and cost so that economic can grow and develop as well as individual need are meet.
Various strategies are made by government to increase their export and decrease import so that
Gross domestic products can be increased (Potts, 2016). Strategies are planned by government in
advance to enhance their international trade and global chain supply. Due to globalisation and
digitalisation there is an increasing in international trade and global chain supply as one country
can easily export their products and services to another country through incurring minimum cost
and efforts. Strategies are made by considering market efficiency such as increase in number of
foreign competitors in the particular country government will impose high tax rates in order to
reduce imports of products and services. It also helps in protecting local supplier and companies
from high competition and helps in economic growth and development of country. All such
barrier or strategies of government highly impact on international trade and global supply chain
thus due to change in strategy consideration global supply and international trade also keeps on
changing. On the other hand some of the country government formulate strategies to reduce
taxes rates, import duty so that foreign companies can easily trade with country and helps in
effective growth and development. Government keeps on changing its strategies and plans of its
country as per market efficiency such as in case of limited products and services in economic it
encourages new foreign firm and investors to offer such products that are not able in their own
country (Turulja and Bajgoric, 2017). Thus, helps in enhancing international trade and global
chain supply so that resources can be distributed equally within economies. Due to various
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strategy consideration international trade and supply changes and it lead to fragmentation of
global economy as some countries have unlimited resources or rich in particular products and
services while other have deficient of particular products. Thus, availability of products and
services, strategies of government lead to classification of economic on basis of disposable
income of person, availability of resource such as human, capital and well established
infrastructure (Clayton, 2016). Globalisation has lead to free trade regulation between countries
so that companies can easily expand their market share through export excess manufacture
products and services to country that have limited resources. Therefore it contributes towards
international trade and global supply chain so that products and services can be delivered equally
in various countries.
There are limited resources in the world so that need to be effectively utilised so that needs
of each and every particular individual can be fulfilled. Different countries have different
resource, capabilities and infrastructure so companies in order to reduce their cost of production
trade in parts so that it can manufacture products at limited cost. Such as most of the large
companies that have operation in various countries planned to manufacture components of final
products in countries such as Asian or Latin American where labours are in plenty amount. Thus,
companies in developed company easily hire highly skilled, qualified at affordable rates thereby
lead to effective growth and development of country (Anderson and et.al., 2018). Globalisation
and continuous improvement in technology has paced in growth of international trade and
companies fragmentation to manufacture qualitative products at effective cost so that needs and
demand of customers can be fulfilled. Companies can easily track and monitor their ship
products and services to other countries through use of innovative technology and development
in international trade and global chain supply. Increasing international trade and global supply
chain due to strategic consideration has lead to fragmentation of various companies’ products in
different countries so that customers can provide wide varieties of choice at affordable rates.
Examples of fragmentation due to international trade and strong global supply chain is that
suppose to manufacture an airplane, it wing are designed in Germany, electronic system from
Japan along with chip that has been made by china, metal from Africa and glass and seat in
Mexico (Finn, 2019). All component manufactured are assembled in United state so that it can
final sold to end user of products thereby international trade, global supply chain lead to
fragmentation of companies products and reducing cost of manufacturing. Thus, international
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trade and global chain supply lead to economic growth and development and expansion of
various companies across world so that needs and preference of people can be satisfied.
Globalisation and international trade has lead to increase in income inequality through
geographical and skill based distributions. Inequality among society exist with countries such
market efficiency has forced government to look over its policies and plan strategy that can
protect people that are living in the country (Dutta, Lanvin and Wunsch-Vincent, 2018). Social
and economic fragmentation has also been affected because of international trade and continuous
increase in global supply chain.
It can also be stated that changes in international trade and global supply chain also lead to
render traditional trade theory as obsolete. International trade theories helps an individual to
effective exchange its products and services among various countries so that companies can earn
large amount of profitability and market share. There are various types of traditional theory of
trades that have become obsolete due to continuous changes in strategic consideration and
international trade. Such as mercantilism theory that state countries that has large number of
import and less export are said to have low economic growth and continuously declining
(Burgoon and Fransen, 2017). Another traditional theory named absolute advantages that state
countries by manufacturing differentiate products can easily trade its product with other
countries that have does not have such resource. Whereas Heckscher-Ohlin theory state that
countries should trade or export products that are available in abundant quantity on the other
hand import products and services that are high in demand and less available in country so that
customers needs and requirements can be satisfied. All such are traditional trade theories that
have become obsolete due to continuous change and development in international trade and
global supply chain. Globalisation and continuous changes in innovation, increase in
international trade has lead to introduction of modern trade theories such as global strategic
rivalry theory. It states that firms need to invest more in research and development and its
intellectual property in order to gain competitive advantages for increasing import and export of
company (Akerman, Naghavi and Seim, 2016). Organisation need to use unique strategies to
manufacture and deliver qualitative products and service while trading international in order to
maximise its market share and productivity. Therefore it can be illustrated that changes in
strategies consideration can highly changes global supply chain and international trade which
make traditional trade theories obstacles. As modern trade theory are launched so that companies
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can easily trade or exchange products and services through use of innovative technology in order
to satisfy need of customers.
3 Evaluation of efficacy of Monetary policy over last decades and Central banks are reviewing
their policy
Monetary policies are formulated by nation central bank in order to control supply of money
within market so that macroeconomic goals can be achieved and sustainable growth of economic
can be promoted. Monetary and fiscal are two policy that are used by central bank to influence
global economic and various activities within countries for effective growth and development of
economics (Yates and Lewchuk, 2017). Since many decades more importance have been given
to monetary policies as it helps in proving support to market and development of real economy.
Monetary policies of central banks are formulated to effectively manage interest rate and flow of
capital within countries for growth of global economy. Central bank use monetary policies to
check economic growth and stimulate market condition for better future. Thus, it use various
tool and techniques for efficacy monetary policies such as increase and decrease in supply of
capital and interest rates. Such tools used by central bank helps in influencing different
individual or people that have sufficient fund to invest in economic for effective flow of capital
and growth, development of countries. Due to financial crises and recession in 2007-2009 target
of federal fund was reduced from 0% to 0.25% in December 2008 which was first time. Global
crises for many years such as high employment rates, low disposable income of people and high
interest rate has lead to various challenges and problem for central bank to formulate effective
strategies. Central bank has decided to take extraordinary steps for better economic growth and
development thus such measure taken by central government has helped in saving global
economic (Seidel, 2019). At the same time such measures have lead to distortion in various
capital markets of countries and impact adversely on growth and development of economies. In
2019 central bank provide great surprise to people through increasing its balance sheet by $100
billion per month and bank also liquidate so that investors can take risk due to reduced in market
volatility. Central bank by reviewing present condition of economic and circumstances of crises
has forced bank to introduce unconventional monetary policies so that economic development
can be paced. Interest rates were brought down to zero in many countries in order to encourage
people to make investment by taking risk and helps in economic growth and development of
country. Various measures that were taken by central banks such as purchase of large scale fixed
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assets, increasing in balance sheet to enhance live styles of people (Herr, Schweisshelm and
Truong, 2016). Situation of recession, high unemployment rates, and inflation rates has lead to
low economic growth and decreases living standard of people so that central bank has to review
its policy. Steps taken by reserve bank have resulted on positive impact such as increase
investment, customer expectation and growth and development in market. Whereas balance sheet
policies implemented by central bank to stimulate market function has resulted in some of the
side effects and hinder growth of economy. But central bank through implementing effective
monetary policies have reduce deflation rates and has one of the objectives to reduce inflation
rates for better living standard of people. Therefore monetary policies used by central
government has illustrated that various changes need to be made in implementation so that better
and effective outcome can be gained (Schwartz, 2017). It can also be evaluated that various
monetary policies of government had worked effectively while other have not implemented as
per objectives set by central bank.
Central bank has formulated monetary policies with an aim to provide effective exchange of
money or monetary stimulus but it had lead to reduce in availability of bond that are available in
the market. It was one of the main issue that central bank was planning to address through
taking counter measure so that global economic can grow and expand at high pace. It can also be
analysis and evaluated that monetary policy is one of the powerful and effective tool yet it is not
so precise and prolonged as have number of side effects. Central bank has planned to encourage
investors and consumers that have high ability to take risk so that aggregate expenditure can be
increased and money can be effectively flow within the economy. Therefore unconventional
tools that were used by government helped in changing and influencing behaviour of various
individual to make purchase or invest in various assets so that maximum output can be gained
(Oreshina, Povorina and Vinogradova, 2017). Globalisation and digitalisation is another strategy
that is use by central bank to encourage movement of capital flow by providing them cheaper
fund and resource at in their home country so that they can export product to another country in
order to earn large amount of profitability. Therefore open financial border helps in encouraging
people or investors that have ability to take risk to spent their fund or make investment in
different countries for effective flow of capital from one country to another. Thereby central
bank in order to enhance effective flow of capital within economic has decided to reduce its
interest rate, cost of capital so that more and more people can be encouraged to make effective
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investment for growth and development of economic (Lim and Savage, 2018). It has also
decided to use flexible operation in order to address uncertain circumstance that occurs in future
and have provide instruction to money market that after extraordinary liquidation is withdrawn
they must be able to maintain sufficient capacity to perform different functions.
Availability of money at cheap rates has lead to affect adversely on cost of capital thus most
of the companies take risk only when cost of capital is low. Low interest rate strategy
implemented by central bank has lead to negative interest rate debt. Thus, this has lead to against
the efficacy of monetary policy as investment tend to decreased as it is compensated by risk of
lending. Negative interest rate debt is about $14 trillion in global market currently but due to
various steps taken by central banks has lead to sustainable improvement in 2019 which is $16.8
trillion thus it can be illustrated that long path need to be followed to remove financial crises in
global economic for better and effectively lifestyles of individual. Federal open market
committee has also used federal fund with an belief that it would lead to increase in employment
and output within country. But in actual circumstance such changes in monetary policies and
funds have make little difference in rates of growth of output, decreases in inflation rates and
unemployment (Dreher and Smith, 2016). FOMC make commitment to maintain its fund rates
target at zero so that economic development can be paced and living standard of people can be
enhanced. Therefore it can be illustrated that central bank had control monetary policies for
effective operation of economic and enhancement in living standard of people.
CONCLUSION
From the above report it can be concluded that changes in strategic consideration also
impact on international trade and exchange of products and services. Strong global supply chain
has been made due to continuous increase in import and export of products as per market
efficiency. Thus, it has lead to fragmentation and obsolete of tradition trade theory that is used by
most of countries to enhance their exports. It can also be concluded that central bank is
responsible for controlling monetary policies for effective growth and development of global
economy.
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REFERENCES
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