Mercantilism is a bankrupt theory. Discuss. Mercantilism is one of the most common economic systems used during the sixteenth to eighteenth centuries. “The main goal was to increase a nation's wealth by imposing government regulation concerning all of the nation's commercial interests.” (Investopedia, 2011) As the discussion statement says, it is a bankrupt theory as it is no longer used in any economic system…
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Accumulating precious metals like gold and silver were considered to be one of the most important indicators of wealth. As a result of this, heavy duty was imposed on exports of gold. Thus the aim of nations is to accumulate more and more precious metals. Trade in the modern world is entirely different from those centuries. Economists had understood that precious metals cannot be set as a benchmark as their reserves are limited. Moreover, colonialism which was one of the major strategies of wealth creation cannot be practiced in the present world. Imports cannot be controlled in the present economy. Nor can the exports be penalized with heavy duties. For an effective balance of trade, a proper import and export level is required. The assumptions of mercantilism are totally against globalization without which economic development cannot happen in the modern world. Mercantilism also involves forceful sales of goods to consumers leaving them no better option. Such practice cannot be adopted in the modern world. Therefore, it can very clearly be concluded that mercantilism is a bankrupt theory. Falling dollar and rising exports A falling dollar means that dollar is being undervalued against other major currencies. Such a phenomenon will have a huge impact on the export figures. In the case of exporting, dollars are received for the goods that are exported. “A lower dollar increases the price competitiveness of US exports.” (Economics Help, 2011) When dollar is devalued, more dollars will have to be paid for transactions. Therefore, from the US perspective more dollars will be received in terms of the payments made by importing countries. As a result of this, there will be a temporary increase of revenue for the exports sector. This scenario is highly beneficial for the manufacturing and exporting companies and a little unfavorable for the importing companies. “A weaker dollar makes it easier for foreign investors to acquire key U.S. assets, such as manufacturers.” (Duesterberg, 2008) The weak dollar makes American goods cheaper in the global markets. As a result, American exporting companies will reap huge benefits. Companies can generate more profits in this scenario and thereby accumulate more greenbacks in their reserves. This will help the US manufacturing companies to be highly competitive against their Peers. For example, Proctor & Gamble, which produces majority of its products in US, will see an increase in profits when the dollar falls. At the same time, its archrival Unilever, which belongs to Europe, will see its profit diminishing. Therefore, a series of decline in dollar value will benefit the US companies while at the same time hitting the importing companies. Importing companies will have to pay more greenbacks for the goods that are imported into US. This will lead to low profitability for them. Organizational issues of transnational of transnational strategies A transnational strategy is defined as a common strategy that is suitable or acceptable for various markets. “When employing a transnational strategy, the goal is to combine elements of global and multidomestic strategies.” (Enotes.com, 2011) Transnational strategy was being introduced in order to eliminate the limitations of global strategy. A global strategy may not be suitable for
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