Global Business Assignment: International Business Analysis

This homework assignment delves into key aspects of global business, examining the interconnectedness of economies through globalization, its positive and negative impacts on national economies, and the dynamics of international trade. It explores the concepts of absolute and comparative advantage, illustrating how they drive specialization and trade between nations. The assignment also analyzes the impact of tariffs, using the US-China trade relationship as a case study to demonstrate how tariffs affect import prices, consumer surplus, and overall market equilibrium. The analysis includes a graphical representation of the effects of tariffs on supply, demand, and trade volume, providing a comprehensive understanding of the complexities of global business and trade policies.

Running head: GLOBAL BUSINESS ASSIGNMENT
GLOBAL BUSINESS ASSIGNMENT
Name of Student:
Name of University:
Author Note:

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Contents
ANSWER-1:....................................................................................................................................2
ANSWER-2:....................................................................................................................................4
ANSWER-3:....................................................................................................................................6

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ANSWER-1:
Globalization is a channel through which entire world economies can be connected
through one string. The concept is symbolic of encouragement in the international connectedness
of the economies through growing trade in terms of sharing and exchanging goods, services,
money, ideas, technology and even culture (Hill, Cronk and Wickramasekera 2013). The basic
intention behind globalization is economic benefit of the nations involved in the process. Since
the process opens door allowing diverse international business activities and entities to enter in
the domestic market, it has greater implication on the business operation and condition of the
internal market and institutions (Coleman 2016). This openness makes the nations responsive
and receptive of world phenomenon, which has both positive and negative influences on any
national economy.
Positive:
 Allows free trade: Greater the globalization more is the free trade, which further indicates
greater export or import of the nation. Globalization increases trade volume, which
further increases national income through increase in the export revenue. If the domestic
business has international demands then globalization can increase its production and
 Greater capital inflow and integrated capital market: Globalization leads to opening of
world capital market allowing for more capital inflow and outflow without much
regulation (Johnson 2013). These are mostly operative through foreign direct investment
and foreign portfolio investment. This leaves positive impact for the domestic business
for wider operation and expansion.

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 Expands market: Greater the globalization more is the free trade and less regulation. This
allows markets to expand cross-border. This further takes care of proper utilization of the
resource while boosts the economies of scale potential of the firms.
 More information and technology: Free trade as result of global integration allows
information and technology to flow too along with goods and services. It reduces cost of
production and increases business profit potential.
 Less inflation: Global expansion strategy often involves charging lower price in
destination countries leading to lower inflation in the consumer goods category. This
might bring down overall inflationary pressure.
 Flexible Labor Market: Globalization not only increases scope of employability but also
leads to a labor market more flexible due to more skills and training provision (Johnson
2013). Skilled labor in workforce have positive impact on the business of domestic firms
who can also benefit from skilled employee.
Negative:
Competition: Biggest turn off globalization exerts on domestic business is huge
competition and survival struggle out of it. In search of market when foreign firms and their
goods enter the domestic market it creates much pressure on existing firms as they face quality
and price issue (Ethier 2014). It is often found that foreign goods are sold at lower price in spite
of being high quality mostly because of the sound technology used in their production. The
severity of competition can even provoke the existing domestic firms to shut down and go out of
the business.

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Inequality: Adverse effect of the process is rising inequality in standards of living stemming
from unequal income. Forces of globalization decreases wage rate in developing countries and
this shifts the major business operation in those areas affecting the business in the developed
nation that mostly have higher wage rate.
ANSWER-2:
Absolute advantage is a concept used in the context of international trade and also a
driving force behind it. It refers to the production capability of labor, which is the only input in
production of any goods and services in comparison with the other producers from other nations.
The cross-country difference in labor productivity allows the nations to undertake production in
which they are more efficient. The greater the comparative labor productivity that is unit
produced per unit of labor more is the absolute advantage leading to specialization in that good
and exchange it with other nation in two goods two country set up (Laursen 2015). No absolute
advantage is possible and leads to no international trade henceforth.
The comparative advantage on the other side drives the international trade based on the
differences of the opportunity costs producers face in production of goods. Opportunity cost
refers to the undergone production of one good in order to produce one unit of other good in two
goods set up of national economy. Whereas absolute advantage would encourage production of
one or both the goods if the labor productivity in one nation is high compared to other,
comparative advantage focuses more on the production in which it has lower opportunity cost
and trade it for other good than producing both the goods even if it has absolute advantage
(Bowen, Hollander and Viaene 2012). Here difference in opportunity cost stems from different
factor endowment and technological set up.

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In real world of limited resources and increasing demand proper utilization of resources
are mandatory. The concept of comparative advantage evokes the specialization, which further
allows nation to produce that good in which it can channelize the resources well. Higher
comparative advantage come from lower opportunity cost and that further consolidates greater
gains from trade.
Labor Hour Required to Produce one unit of
Country Vegetable Machine
A 100 80
B 90 120
In our example there are two countries A and B producing two goods vegetable and Machine.
Country A takes 100 units of labor to produce one unit of vegetable and same taken by country B
is only 90 unit of labor. In terms of absolute advantage it is evident that country B is more
efficient in producing vegetable as it produces with less number of labors and it should trade it
with A in return of machines. The comparative advantage would look at opportunity cost of the
vegetable and machine. In country A, 100 hours of labor either produces one unit of vegetable or
1.25 unit of machine. 80 hours of labor, produces either one unit of machine or 0.8 unit of
vegetables. Hence, opportunity cost of producing machine is less as less than one unit of
vegetable production had to be foregone to keep up the machine production. As a result Country
A would specialize in machine production and would like to trade and exchange it for vegetable
from Country B that seems to have comparative advantage in vegetable production (Bowen,
Hollander and Viaene 2012).

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ANSWER-3:
Tariffs are treated as tax imposed by government on the importable by a nation. This can be a
fixed amount like $1 or ad valorem tax that refers to 5% of the price (say). Imposition of tariff
always raises the price for the consumers that forces reduction in import. This leads to further
retaliation by other nations who faced dropped demand for their goods in world market. major
reason behind tariff is to create trade barrier in order to protect domestic producers and industries
from cheap import. Hence lower the tariff, higher is the trade taking place. Greatest implication
behind imposition of tariff by US is to restrict free trade of it with China by making imports
costlier. Per unit of import now, US firms have to provide a fixed amount of tariff that is said to
be almost 45% of tariff or tax imposed leaping from the figure 3% initially (Riezman 2013).
There are certainly reasons economic and political behind the phenomenon. The biggest
intention is to drop Chinese imports. The Chinese goods are capturing the world market for
providing quality in fewer prices than the national markets of the economies. This hurt the
survival of domestic firms that further raises loads of economic issues like unemployment, lower
income and subsequently lower demand for home based goods or production. Moreover, the
government wants to capture more tax revenue in order to maintain its fiscal position.
Imposition of tariff that acts like tax on per unit import definitely raises the price of
importable in domestic market. This adversely affects the direct consumers of the goods.
Moreover, this incident indirectly calls for inflation in the economy too. Many domestic firms
use imported inputs in their production process. The tariff imposition would make the price of
inputs go up hitting hard their existence and raising the cost of production (Coleman 2016).
Higher the cost of production, higher will be the price charged in market, which would again
affect the consumers in multiple ways.

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S (Domestic)
S (World) No Tariff
S (World) With Tariff
40 60
D
4
2
3
Q millions
Price
50
Fig: (Created by author)
From the diagram, it is clear that the domestic market equilibrium price is higher at $4 than
world market equilibrium, which is at $2. This encourages more import in absence of no tariff
imposed. In absence of tariff the world market equilibrium quality is 60 millions. In presence of
tariff, the world market equilibrium price increased up to $3 and the quantity falls to 50 million.
Initially the import was 20 million and now it falls to 10 million. Imposition of tariff not only
increases the price level faced by consumers but also reduces the consumer surplus affecting the
total welfare of the society as well (Bowen, Hollander and Viaene 2012). Similarly, the
imposition of higher tariff by Trump government would reduce the consumer surplus in US
economy and expose them to higher prices for the imported goods.
.

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REFERENCE:
Coleman, W.D., 2016. Financial services, globalization and domestic policy change. Springer.
Cuñat, A. and Melitz, M.J., 2012. Volatility, labor market flexibility, and the pattern of
comparative advantage. Journal of the European Economic Association, 10(2), pp.225-254.
Dunning, J.H., 2014. The Globalization of Business (Routledge Revivals): The Challenge of the
1990s. Routledge. (Dunning 2014)
Ethier, W., 2014. Internationally decreasing costs and world trade. In THE FLOATING
WORLD: Issues in International Trade Theory (pp. 53-76).
Feenstra, R.C., 2015. Advanced international trade: theory and evidence. Princeton university
press. (Feenstra 2015)
Hill, C.W., Cronk, T. and Wickramasekera, R., 2013. Global business today. McGraw-Hill
Education (Australia).
Johnson, H.G., 2013. International trade and economic growth (collected works of Harry
Johnson): Studies in pure theory. Routledge.
Laursen, K., 2015. Revealed comparative advantage and the alternatives as measures of
international specialization. Eurasian Business Review, 5(1), pp.99-115.
Maurer, A. and Degain, C., 2012. Globalization and trade flows: what you see is not what you
get!. Journal of international commerce, economics and policy, 3(03), p.1250019.

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Noussair, C.N., Plott, C.R. and Riezman, R.G., 2013. An experimental investigation of the
patterns of international trade. In International Trade Agreements and Political Economy (pp.
299-328).
Riezman, R., 2013. Tariff retaliation from a strategic viewpoint. In International Trade
Agreements and Political Economy (pp. 21-31). Bowen, H.P., Hollander, A. and Viaene, J.M.,
2012. Applied international trade. Palgrave Macmillan.