Question

A multinational company is currently producing goods in China to export to the US WHAT are the risks and strategies this company may be facing in order to deal with the uncertainties of the Trade War between the US and China?? (provide details regarding specific risks and strategies the company may use in order to cope with these risks)

Provide details and specify possible changes that the continuation of a Trade War may bring about to the Balance of Payments for both, China and the US and to the economic growth of these countries.

Answer 1

The trade wars lead to price imbalance and detrimental to the end consumer.

the spedific risk that company faces are - Price risk and Currency risk.

Price risk - Due to trade war, US most likely increase the tarrifs. So, the demand for the product will be reduced. It leads to less products being sold, higher competition and less margins.

Inorder to cope up for this, lot of innovation is required. So, lot of amount is required on automation to reduce costs.

Currency risk - Since the demand for products from China reduces, it may result in dollar appreciating. Though this benefits the Chinese company, but if it depends on any raw material imports for which the payments are in USD, the margins will shrink. Also, if US imposes tarrifs, China also imposes similar tarrifs and this leads to increase in price of raw material imports. As a strategy, currency risk should be hedged.

Also, it may think of setting up aseembling unit in US, so as to brand them as Made in US.

Impact on balance of payments -

Due to trade wars, the competitive edge of the both the countries will diminish and impact them negatively.

Also the price advantage end consumer will gets is less. The GDP will reduce, and the currencies will become more volatile and the over all well being of the finacial markets, economies are impacted due to this.