Question

Based on your viewing of the module on International Trade, answer the following question:

If you buy an American car, is it truly an "American" car. Why or why not?

Answer 1

While buying an American car , usually this means the managing brand or the brand owner is established in America. The brand name is entitled to a place. With international trade and the possibility of cheap labour and natural resources, the setting up of plant regarding various parts must be located in varied locations like China , India etc, where labour is cheaper and setting up of plant is relatively cheaper. The assembling of a car requires many parts like steel and alloys for the outer body, engine , leather for car seats , tyres etc. For every section , on order to capture economies of scale, one part is produced in large quantities , then supplied to various companies , where assembling takes place. The assembling process may or may not be in the areas where the owner is setting his base company in, eg. Assembling for an American based company may take place in America or not.

Hence with trade , companies tries to extract maximum profit with minimum cost of production , which is extracted with the help of low cost goods and labours . The irony is although developed nations like American extract super normal profits out of developing or under developed nation's cheap labour, but the world consumers recognises a brand superior quality , because they are from a company owner of a developed nations. This means American car company can extract addition profit with the brand value .

In conclusion an American car is branded American but parts are from varied parts of the world.( Usually from nations with cheap labour)