Week 6 Discussion 1 and 2

Week 6 D 1

For the country of NEW ZEALAND Discuss how comparative analysis, trade restrictions, tariffs, and exchange rates of New Zealand will impact the business decision to expand there. You need to take these macroeconomic concepts and apply them directly to the Walmart expansion decision. Considering the topics you have studied throughout this Business analytics and political influences, what other economic factors may impact your decision to expand to New Zealand?

I chose New Zealand for the Walmart expansion. For a firm wishing to expand into New Zealand, a few trade impediments exist. New Zealand is one of the notable trade partners with the European Union, with an economy open for international trade and foreign investment. With minimal trade restrictions and tariffs, the country is a perfect market for Walmart. Additionally, New Zealand is one of the best foreign markets for its favorable trade policies (Xue, 2021). Thus, tariffs may be an insignificant concern for Walmart. On the contrary, favorable tariffs could offer the firm a chance to operate at low costs and maintain cheap prices.

Walmart must ensure the management and other executives responsible for the expansion is conversant with the country’s trade policies and requires standards, and regulations that may impact its operations. In imports and exports, the currency is relatively strong, so there are not many disadvantages for the firm, with inflation rates relatively low, implying the efficiency of the country’s central bank (Kumar et al., 2020). Except in the early months after the Covid-19 pandemic outbreak, foreign cash is highly available in New Zealand, indicating a relatively great financial support for importers.

Several other factors would influence this decision and are crucial as far as the macroeconomic concept is concerned. For instance, the economy’s GDP is an important metric, especially considering the overall trend. It would be necessary to determine whether the economy has been experiencing growth or recession because such an event would influence the financial performance of Walmart. Another factor is the country’s political stability. New Zealand has been stable politically, hence less concern from unfavorable policies and social clashes that may impact the firm’s presence.

References

Kumar, V., Acharya, S., & Ho, L. T. H. (2020). Does Monetary Policy Influence the Profitability of Banks in New Zealand? International Journal of Financial Studies, 8(2), 35. https://doi.org/10.3390/ijfs8020035

Xue, H., Li, C., & Wang, L. (2021). Spatial Price Dynamics and Asymmetric Price Transmission in Skim Milk Powder International Trade: Evidence from Export Prices for New Zealand and Ireland. Agriculture, 11(9), 860.Chicago

In Chapter 9 you were introduced to the terms trade deficit and trade surplus. In Chapter 19 your view of imports and exports was expanded to include the balance of payments. As part of the balance of payment calculation, trade deficit or trade surplus is called balance on goods and services (p. 396, exhibit 5, line 7). Business news commonly use the term trade deficit to discuss the U.S. economy rather than your textbook’s favored term, balance on goods and services. The trade deficit or trade surplus (p. 396, exhibit 5, line 7) has the biggest impact on the current account. Politicians often warn us about the problems of the US having a trade deficit. For this easy, cordially debate whether the US should be concerned about our trade deficit. first discuss how the balance of payments can influence exchange rates and purchasing power. Then take a position either for or against trade deficits. In your position, address the pros and cons of the U.S. trade deficits. Support your response with at least one scholarly and/or credible resource in addition to the text.

Week 6 D2

The balance of payments includes both the current account and capital account. The current account includes a nation’s net trade in goods and services, net earnings on cross-border investments, and net transfer payments. The capital account includes a nation’s transactions in financial instruments and central bank reserves. A change in the US balance of payments can cause fluctuations in the exchange rate. An increase in exports leads to a trade surplus which eventually strengthens the domestic money’s exchange rate against foreign money. So, if the US exports more than it imports, its currency strengthens, hence a greater purchasing power. An increase in imports greater than exports weakens the domestic currency, lowering its purchasing power.

A trade deficit is a numerical difference between the country’s exports and imports of goods and services. The trade deficit is a concern for the US because it reduces the incomes of domestic workers, pushing many citizens into the lower income bracket. Individuals in the low-income class also find it hard to save, ultimately reducing national savings (Blecker, 2016). The U.S. should be concerned with the trade deficit because it has been rising since 2013. For this reason, I am against the trade deficit. According to the Bureau of Economic Analysis and the U.S. Census Bureau, the U.S trade deficit increases from $676.7 billion in 2020 to $861.4 billion in 2021 as imports increased more than exports (BEA, 2022). One alarming trend is the increase in imports more than exports because this could signify a potential loss in the dollar’s purchasing power.

The pros of trade deficit. It improves living standards by making the availability of a variety of foreign products which may be unavailable from the domestic market. It creates a competitive gain and attracts large capital inflows, especially in the form of foreign direct investment.

The cons of trade deficit. It is harmful to developing countries because it leads to deflation as imports are greater than exports. There is a potential decline in the domestic market as most services are outsourced. It leads to foreign ownership as foreign investors eventually own resources and businesses in the economy. Finally, it devalues the domestic currency.

References

BEA. (2022). 2021 Trade Gap is $861.4 Billion | U.S. Bureau of Economic Analysis (BEA). Www.bea.gov. https://www.bea.gov/news/blog/2022-03-08/2021-trade-gap-8614-billion

Blecker, R. A. (2016). Beyond the Twin Deficits: A Trade Strategy for the 1990’s: A Trade Strategy for the 1990’s. Routledge.