Discussion: (4 comments)
Comments are closed.
More options: Share,
View related content: Carpe Diem
The table above (click to enlarge) is based on financial data included in the World Investment Report, a report produced annually by the United Nations Conference on Trade and Development (UNCTAD) and just released last week with data for 2018. Table 19 of the UNCTAD report lists the world’s top 100 non-financial “Multinational Enterprises” ranked by foreign assets in 2018, and the table above displays data for the 19 multi-national corporations (MNCs) in that group that are headquartered in the US. Displayed above are figures for those 19 MNCs’: a) foreign assets, b) foreign sales, and c) foreign employees, both alone and most importantly as shares of the global totals for those three items for the 19 US-based companies. Those figures with shares above 50% are displayed above in bold.
Here are some key points from the table above:
MP: To remain competitive and profitable in an extremely competitive global marketplace, US firms have to operate as efficiently as possible, and produce their products at the lowest possible cost to survive. The long-term viability and sustainability of US MNCs forces them to minimize production costs for their customers in global markets, and sometimes that requires them to shift production and jobs overseas, possibly to take advantage of lower labor costs, lower taxes, or more favorable regulations. It’s also frequently the case that expanding production and manufacturing operations overseas takes place to better serve retail markets outside the US and the 95% of non-American global consumers.
Last year, for every $1 in domestic sales, foreign sales were generated by US companies in the following amounts: Intel $4, Mondelez $3, Johnson & Johnson $2.50, Apple $1.71 and GE $1.60. It therefore makes perfect economic sense for those US-based MNCs to source, manufacture and assemble a large share of their production overseas, since such a large majority of their sales take place in foreign markets, and not the US market. In the current nationalistic, jingoistic “America First” politically-charged climate, we’ve seen the Mercantilist-in-Chief routinely put political pressure on large MNCs like Intel, Coca-Cola, Ford and Apple to shift production of their products to the US where labor costs and corporate taxes are higher, and where production is moved further away from the retail markets where those products will ultimately be sold. Corporate decision-making that is based more by political pressure than sound economics and business considerations, could disrupt those companies’ carefully orchestrated, and maximally-efficient global supply and value chains. To the extent that Tariff Man is successful at pressuring US companies like Ford, Intel and Apple to shift production from overseas to the US for shallow political purposes, it could put those companies at a competitive disadvantage in the global marketplace by forcing them to incur higher operational costs and higher tax burdens.
Bottom Line: It’s important to recognize that large US-based MNCs like the ones in the table above (but also hundreds of other large US multinational firms) operate in a hyper-competitive international marketplace — they produce and sell their products globally, they source inputs globally through efficient supply chains, they hire workers in competitive international labor markets, they invest in capital assets, infrastructure and real estate globally, and they compete with foreign rivals in an intensely competitive global marketplace. US-based MNCs are already exposed to constant risks and challenges, changing consumer preferences and gales of Schumpeterian creative destruction, which force them to focus relentlessly on operational efficiencies and low production costs to survive, and they have to make decisions at the global level to compete with their foreign rivals and maintain or grow market share. Saddling American firms with additional, unnecessary and avoidable political burdens, trade wars, tariffs, uncertainties, and risks from a protectionist, nationalist, jingoistic, mercantilist, xenophobic, “America First” administration that forces firms like those in the table above to think domestically under political pressure rather than globally for economic reasons isn’t a formula to make America great. It’s a formula that’s guaranteed to make American companies weaker and the country poorer, and in the process eliminate, not create more jobs, for US workers, and reduce, not increase American greatness.
Comments are closed.
1789 Massachusetts Avenue, NW, Washington, DC 20036
© 2019 American Enterprise Institute