Global Business Assignment: Trade Theories, Tariffs, and Implications

This report provides an analysis of international trade theories, specifically the Factor Proportions Theory and the International Product Cycle theory, including their limitations. It uses real-world examples to illustrate these concepts. Furthermore, the report examines the implications of US tariffs on Chinese imports, initiated by the Trump administration, discussing the reasons behind the tariffs and their impact on domestic consumers and businesses. It highlights the potential for increased prices for American consumers and challenges for US domestic businesses, referencing the trade deficit and the economic conflict between the US and China. The report concludes by noting the potential for retailers and companies like Amazon to absorb some of the cost increases, minimizing the impact on consumers to a certain extent. Desklib provides access to similar solved assignments and study resources for students.

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Answer 1
Factor Proportion theory of International trade has further explained that in a two-
dimension nation along with dual factor and two commodity frameworks, various nations are
endowed with varying proportions of different factors of production. As few countries
comprise large populations as well as large labour resources (Fussand McFadden2014).
Furthermore, the Factors Proportion Theory can be considered as effective if capital abundant
country has a distinct preference for the labour intensive resources and a labour abundant
country tends to exhibit greater degree of inclination towards capital-intensive capitals and
goods. However, it has been observed that the factor proportions of the production of a
product vary significantly among a certain range of products (Helpman and Razin 2014). The
Factors Proportion Theory further stated that factors tend to intensify depending on the state
of technology as well as the current method of manufacturing of a given product.
Furthermore, the theory presupposes that similar technical proficiencies of production would
be implemented for similar goods in all nations (Viner 2016). However, it has been noted that
besides the typical assumptions of two-dimensional countries and capital, the Ohlin’s Factors
Proportion Theory does not presuppose any qualitative divergences in the factors of
production, identical production operation as well as invariable return to scale. However all
these assumptions have made the theory highly unrealistic by further posing limitations to it.
For example, when a nation has extensive oil reserves in order to generate its products, they it
does not comprise adequate iron ore reserves thus will require importing iron ore in order to
generate effective production.
The International Product Cycle (PLC) theory primarily reveals a framework in order
to identify the emergence of certain areas of avenues and threats within the product market as
well as the industry (Fussand McFadden2014). However, such a theory tends to aid business

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enterprises to re-evaluate their market strategies and purposes as well as various elements of a
marketing program. The theory further explains that the cycle tends to undergo when highly
exposed to the international market (Bilir 2014). It suggests that a business enterprise initially
establish itself locally and further emerges into global markets in response to foreign demand
for its product. However, one of the major areas of limitations of this theory it is primarily
relevant specifically to products and not applicable to brands or other services (Viner 2016).
For example, Microsoft comprises a broad range of products and has undergone several
advantages and challenges with the introduction of these products. However, it does not
imply that the brand ‘Microsoft’ is in the maturity stage or decline stage. There are certain
products which are growing while the others are at the stage of maturity or decline (Fussand
McFadden2014).
Answer 2
The US in recent past has imposed increased Chinese imports that is for the been
identified as the largest trade war in economic history between the world's leading two
economies. Furthermore, it has been observed that Donald Trump government implemented
around 25% duties on about $ 35 billion in a number of Chinese imports such as machinery,
electronics as well as high-technological equipment which includes autos, hard drives and
LED(Siegel 2018). However after series of the discourses between the two major economic
place in the market appeared to be ineffectual, it has been observed that Trump government
have already post the chances of risks that Washington was organising to levy duties on a
wide range of Chinese imports valuing over billion dollars(Bomey 2018). It is important to
note that the latest assessment on the increase of tariffs by the White House that has been
effective from 6 July 2018 in retribution to the assumed intellectual property theft by China.
However, these vital evaluations are regarded as intensification, which could further pose

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challenges for China to retaliate further where the country is known to import about $ 160
billion of US merchandise and services till 2017.
However during the US election campaign in 2016 Donald Trump the present US
President has given declaration to its citizens to safeguard the employment rate and level of
USA and further to renegotiate US trade deficits with nations across the world(Bomey 2018).
The United States has been revealed to be undergoing world's largest trade insufficiency,
which implies that the nation purchases higher rate of goods and services from other nations
in comparison to its sales growth overseas that has been evaluated to be $ 570 billion last
year(Partington 2018). As a result, China has been held accountable for the abundance of the
shortfall in terms of products which are being exported around 360 billion more to the US
than it is being purchased from the US producers(Bomey 2018).
President Trump's major decision to levy heavy tariffs on Chinese imports along with
the retaliation threats and challenges from China have stimulated new areas of challenges and
complexities related to the augmented price range for both American consumer base and a
significant decline for US domestic businesses(Bomey 2018). Furthermore, Trump's
presumptions to impose around 25% tariffs on $50 billion to around $ 62 billion in Chinese
exports to the US further including aerospace, information as well as communication cyber
along with the rational property theft of US technology(Partington 2018). Furthermore, it has
been observed that this major economic conflict with further condenses the economic
development of the country including the critical impact from the steel and aluminium duties
in terms of price increase. Addition to this some reports have revealed that the economic
growth has been anticipated to intensify at the rate from 2.5 % to around 3% by 2019. The
US officials have further stated that the latest impose on the increase of tariffs on Chinese

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imports will be applied in the way which would alter in order to minimise or reduce the effect
of this tariff intervention by the terms government on its consumer base(McKelvey 2018).
Furthermore, with the imposition of increased tariff rate on Chinese imports that will
have great impact especially on popular imports merchandises such as smartphones, laptops
and other digital tools, the retail base of the US would reveal a propensity to absorb some of
the cost-effectiveness, further resulting in around 15% /price increase for its domestic
players(Siegel 2018). Furthermore, Amazon that has been purchasing abundant rate of
products and further operates on thin product margins, the company could only pass around
2% increased price to its consumer base.

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References
Bilir, L.K., 2014. Patent laws, product life-cycle lengths, and multinational
activity. American Economic Review, 104(7), pp.1979-2013.
Bomey., N.2018. [online] Usatoday.com. Available at:
https://www.usatoday.com/story/money/2018/07/06/president-trumps-china-tariffs-
consumer-impact/762982002/ [Accessed 27 Jul. 2018].
Fuss, M. and McFadden, D. eds., 2014. Production Economics: A Dual Approach to Theory
and Applications: Applications of the Theory of Production (Vol. 2). Elsevier.
Helpman, E. and Razin, A., 2014. A theory of international trade under uncertainty.
Academic Press.
McKelvey., T. 2018. Trump puts 25% tariff on Chinese goods. [online] BBC News.
Available at: https://www.bbc.com/news/business-44498484 [Accessed 27 Jul. 2018].
Partington., R. 2018. Why is Donald Trump threatening more tariffs – and what next?.
[online] the Guardian. Available at:
https://www.theguardian.com/business/2018/jun/19/donald-trump-tariffs-us-china [Accessed
27 Jul. 2018].
Siegel., R. 2018. Trump says ‘tariffs are the greatest!’ as Harley-Davidson earnings offer
hint of trade war fallout. [online] Washingtonpost.com. Available at:
https://www.washingtonpost.com/amphtml/business/2018/07/24/trump-says-tariffs-are-
greatest-harley-davidson-earnings-offer-glimpse-into-effects-trade-war/?noredirect=on
[Accessed 27 Jul. 2018].
Viner, J., 2016. Studies in the theory of international trade. Routledge.