13.1 trade flows and trading patterns Flashcards
1
Q
imports
A
goods or services produced outside of the country and brought in or purchased
2
Q
exports
A
goods or services produced inside of the country and sent elsewhere
3
Q
balance of trade
A
the difference in value between a country’s imports and exports
4
Q
trade deficit
A
when the value of imports exceed exports
5
Q
trade surplus
A
when the value of exports exceeds the value of imports
6
Q
visible trade
A
physical goods such as foods,cars,furniture covering raw materials and secondary goods
7
Q
invisible trade
A
goods that are services, predominantly in the tertiary sector
8
Q
has trade always been global?
A
- trade bas been around for a long time, but changes throughout human history have impacted it
- colonialism established many still relevant links
- patterns of mostly LICs producing primary goods and HICs secondary and tertiary
- more complex pattern emerged at the end of colonialism and WW2
- World trade now accounts for over 30 per cent of GDP – about three times its share in 1960
9
Q
inequalities in global trade
A
- Overall, the top ten traders in merchandise accounted for 52 per cent of the world’s total trade in 2013
- The position of China as the world’s largest trading country is the most obvious example of this trend, but other examples include South Korea, Mexico, India, Brazil, Thailand and Malaysia
- The trading positions of affluent countries with relatively small populations, such as the Netherlands, Belgium and Switzerland
- least developed countries’ share of total global merchandise exports totalled only 1.1 per cent, compared to the 75.5 per cent of the G20
- Between 2000 and 2013, trade in services from LDCs grew on average by 14 per cent per year. Examples have been: Cambodia as the leading LDC tourist destination, Ethiopia’s expansion of air transportation services
-LDCs’ share of world exports of commercial services totalled only 0.7 per cent in 2013.
10
Q
resource endowment
A
How many resources a country has at its disposal that can be utilized for manufacturing (labour, land, money, entrepreneurship)
- EXAMPLE: OPEC (organization of the petroleum exporting countries) – intergovernmental organisation of global oil supply
- Tanzania: exports plants and food (climate and nutritious soil) to afford imports of gas and technology to produce more exports
- the natural resources (land, minerals) a country has to exploit to produce exports
11
Q
comparative advantage
A
- different countries will specialise in producing those goods and services for which each is best endowed
- leads to specialisation in production and employment
- global reputation
- EXAMPLES: German cars, Japanese high-tech, Belgian chocolate, Dutch flowers
12
Q
locational advantage
A
- influences patterns
- spatial proximity reduces transport costs: easier surplus
- Advantageous for exporting country to be close to markets
- Strategic locations along trade routes
-EXAMPLE: manufacturing in Canada benefits from proximity of US market - 76% of total exports to US in 2016, 52% imports from US
- France: mass tourism (90 million), helped by nearby European countries with large populations
13
Q
investment
A
- FDI (foreign direct investment) key to increasing trade
- Poorest LIC’s have unfavourable investment climates that don’t (cannot) provide support
- Economic, social and political instability (crime and corruption) deters investment- risk
-EXAMPLE: Low income globalisers (China, Brazil, India, Mexico) increased trade-to-GDP ratios significantly
14
Q
historical factors
A
- colonial ties of old empires of the UK, Spain, the Netherlands, France etc. still maintain strong trade links
- The Commonwealth is a contemporary example.
- Since colonies were subordinates, they depended on the colonial overlords, creating a trade dependency, which is still applied
- terms of trade are generally disadvantageous to the poor countries, many LICs have high trade deficits
- exploitive relationships prior to independence (1940-70s) maintained, but weakening within colonial groups
15
Q
the terms of trade
A
- determines if a deal happens or not
- if country relies on export of cheap commodities and expensive imports it needs to export in large quantities to afford low volume of imports
- poor countries are primary-product dependent: rely on small number of exports
- as prices of primary goods decrease and fluctuate poorer nations struggle deciding on economic and social policies in comparison to HICs
- terms of trade generally disadvantageous for poorer nations thus hard to get out of poverty and results in trade deficit
- HICs: facing fall in trade due to decreasing prices
16
Q
trade agreements
A
- a trade bloc is a group of countries that share trade agreements between each other
- in 1990 there were less than 25 by 1998 more than 90
- EU, NAFTA, ASEAN+ : dominates world economy: 67% of all world trade
- Tariffs: tax on imports or exports
- Quotas: limit on number of imports or exports
- Trade blocs: group of countries that manages and promotes trade with shared agreements, to stimulate trade between them
- Free trade areas (NAFTA): no tariffs or quotas for members
- Customs unions (MERCOSUR): free trade area with common external tariff for non-members
- Common markets (EAC): custom union with free movement of labour/capital
- Economic unions (EU): common markets where members adopt common economic policies
- Issues of trade blocs: threaten free trade and promote protectionism by controlling types of trade and establishing tariffs to protect from outside forces.
17
Q
concerns with trade agreements
A
- regional agreements can divert trade (inducing a country to import from trading bloc not from a cheaper supplier elsewhere)
- regional groups might raise barriers against each other: protectionist blocks
- regional trade rules may complicate the establishment of new global regulations
18
Q
free trade areas
A
- members abolish tariffs and quotas on trade between themselves (NAFTA)
19
Q
customs unions
A
- a closer form of economic integration, all members are obliged to operate a common external tariff on imports from non-member countries
20
Q
common markets
A
- customs unions that in addition to free trade in goods and services also allow the free movement of labour and capital
21
Q
economic unions
A
- organisations that have all the characteristics of a common market but also require members to adopt common economic policies on such matters as agriculture, transport, industry and regional policy - EU
22
Q
changes to the global market
A
- 1990: HICs controlled about 64% of the global economy (measured by GDP) vs 2009: only 52%
- political consequences: emerging economies exerting much more power than they had previously in international negotiations.
- Western developed countries are experiencing stagnated/declining growth, while developing markets keep growing
- Increased power of emerging economies in global negotiations
23
Q
trade and development
A
- countries with a high level of trade = richer than those with lower levels
- benefit from strong inflows of foreign currency and from the employment their industries provide
- purchase goods and services from abroad that it either does not produce itself
- The World Bank has acknowledged that the benefits of globalisation are barely being passed on to Sub-Saharan Africa and may actually have accentuated many of its problems
- An Oxfam report (2002): if Africa increased its share of world trade by just 1%, it would earn an additional £49 billion a year – 5× the amount it receives in aid.
24
Q
the world trade organisation
A
- global system of trade rules and helps developing countries build their trade capacity
- ensure trade flows smoothly and freely
- trade negotiations, implementation and monitoring, dispute settlement, building trade capacity, outreach,
- every nation has an equal vote (rich world shuts out poor from key negotiations)
25
WTO achievements
- average tariffs 1/10 of what they were
- world trade has been increasing faster than GDP
- Over the past 20 years, WTO members have agreed major updates to the WTO rulebook to improve the flow of global trade
- The WTO's membership has expanded to 164 members, representing over 98% of international trade.
- In 2015, the WTO reached a significant milestone with the receipt of its 500th trade dispute for settlement
26
WTO critics
- does free trade benefit all those concerned or is it a subtle way in which rich nations exploit poorer
- argued that the institution "only serves the interests of multinational corporations, undermines local development, penalises poor countries, [and] is increasing inequality"
- some agreements about agriculture and pharmaceutical goods have led to restricted access to food and healthcare, thus causing large numbers of deaths
- The policies that support these principles fail to protect developing nations, and in some cases take advantage of them
- For example, UNCTAD estimates that market distortions cost developing countries $700 billion annually in lost export revenue
- environmental concerns: eg failed to protect dolphins from tuna nets
27
the global trading system
- developed at time of European colonial expansion
- colonial division of labour: LICs exported primary products, HICs manufactured goods
- world trade now accounts for over 30% of GDP
- trade results from uneven distribution of resources
- manufactures dominate, then fuels and mining then agriculture
- 2000-2013 trade services from LDCs grew by 14% per year
- developed world grew by an average of 2.1% a year, the emerging markets expanded by 4.2%
28
patterns and inequalities in trade flows
2013:
- China recorded a surplus of 259 billion dollars, 2.8% of GDP
- USA had a trade deficit of 750 billion dollars, 4.4% of GDP
-top ten traders in merchandise accounted for 52% of world's total trade
- LDCS share of world exports of commercial services was 0.7%, now declining in NA and EU and increasing in Asia
29
India and the WTO
- forced to accelerate opening markets
- food imports quadrupled
- rural incomes fallen sharply
- price paid for coconuts has dropped 80% and coffee 60%, pepper 45%
- have undercut local producers and have virtually wiped out some local production
30
Fairtrade
- small-scale producers group together
- deal directly with companies such as large supermarkets in HICs
- HIC companies pay above market price: few more pence for consumers
- provides better standard of living and money to invest in farms
- help producers in developing countries achieve sustainable and equitable trade relationships
- tackle global poverty
- involving over 400 HIC companies and 500 000 small farmers and their families in poorest countries
31
trade in tea
- exemplifies the relatively small proportion of final price that goes to producers
- post-raw stages usually benefitting HICs than LICs
- many countries produce tea: competition
- supermarket retailing 50% and marketing and distribution 36% of value chain
32
covid19 effect
within 4 months of COVID-19 pandemic, the US and UK’s total export value fell by around $1.5bn
33
nature of the WTO
- Removes trade barriers to increase global trade
- Reduced tariffs from 40 à 25% (1/10 of pre-1947 tariffs)
- 160 global members
- Only considers trade of visible goods
- Ensures economic tensions do not lead up to confrontation
- Creates stability and predictable trade rules
- 10 benefits; from promoting peace to raising incomes
34
functions of the WTO
- Trade rules: sets the rules
- Promotes trade: helps governments understand rules so more members can take part in free trade
- Settles disputes: acts as a legal buffer between disputers
- Monitors agreements: checks if implemented
- Principles: transparency, stability, non-discriminatory
35
advantages of the WTO
- Attractive free-trade for developed economies (allows exploitation of LICs (labour and natural resources) by HICs to lower costs)
- Provides proper platform for trade decisions = increased trade opportunities and guidance
- 160 members encompass 98% all trade. 20 applicants
- Solves disputes to prevent further escalation (may have prevented 2008 trade war, like 1930 recession)
- Total value is around $18tn per year
- 22% exports increase since 1995
- Provides concessions for LICs – legal right to no discrimination in trade deals
- Continuation of pre-1950 agreements for HICs give them more power of newly-joined LICs
36
disadvantages of the WTO
- LICs can’t use trade barriers to protect developing economy
- Unfavourable rules for LICs - no ‘tariff period’
- Deals overshadowed by TIPP agreements that focus on the UK and EU
- Slow progress – takes too long to reach deals, leading countries to make alternative deals
- Deals still allow for protectionism of some industries
- Promotes TRIPs – medication too expensive for LICs
- Favours multi-nationals, LICs can’t use local contractors
- Expensive legal system (in 15 years; 400 cases from HICs, but only 1 brought forward by an LIC)
- Decisions made by consensus, link remains between market size and politics. LICs have small voice
- “WTO rules pull away the ladder [from LICs] that HICs used to climb up” – journalist quote
37
evaluation of the WTO
- Must become more democratic
- Should shift focus to labour, human rights and environmental issues
- Could be more flexible for local and national decisions
- Must treat LICs equally to HICs
- All things considered, it is impossible to please everyone
38
advantages of free trade
- Lower prices for consumers: (↓ tariffs = ↓ cost)
- Greater competitiveness: ↑ incentive to cut costs
- Law of comparative advantage: free trade = ↑ economic welfare (country specialises in goods with low opportunity cost)
- Economies of scale: higher quantity = ↓ cost
- Encourages growth of trade: ↑ of 7% since 1945
39
disadvantages of free trade
- Environmental: encourages LICs to use up raw materials to produce exports
- Encourages ‘dumping’: flooding the market with product causes prices to ↓, other companies collapse
- Cuts revenue: no import tax for the government
- Limits economic diversity: countries can only produce what they’re good at
- Infant industries: have a hard time breaking into global competition
40
impacts of trade on development
- Higher levels of trade are associated with richer countries
- Trade is up to 20x more valuable than aid, but is constrained by trade relationships with HICs (take advantage)
- Africa: . Also, a 1% trade increase = extra £49bn per year (5x value of annual aid)
41
impacts of trade on LIC agriculture
- Opportunities to make good incomes by farming
- Cash crops remove vital land, require irrigation and pesticides, causing environmental damage
- Kenya: 6% average economic growth from 2008-13
- Uganda: overproduction in 1995-2000 led to 75% fall in income
42
impacts of trade on LIC manufacturing
- Value is added to raw materials, leading to high rates of economic growth (primarily Asian countries)
- Human and labour rights are hard to manage, leading to abuses of workers in sweatshops
- China: since 2000, has had GDP growth rate of between 15 and 6%. Workers earn around $10k per year. Foxconn factory installed nets to stop workers committing suicide
43
impact of trade on HICs
- Experience continued economic stability, powered by the exploitation of LICs for their labour and natural resources
- USA: home to massive TNCs such as Apple, Tesla, Amazon etc…
44
The Fairtrade foundation
- Sets standards: social, economic and environmental
- Certifies products and ingredients: independent checks to ensure that standards are being met
- Works with companies own schemes: guides them and compares their scheme to Fairtrade’s
- Lobbies government: campaigns for LICs
- Works with farmers and workers: work with individuals on issues and tackle global farming issues
- Drives awareness with the public: advertising and education
45
operation of Fairtrade
- Small farmers group into co-operative groups
- Co-op groups have high social and environmental standards
- Co-ops talk to companies directly – cut out middle man, demand higher price
- In most cases there is 100% price increase for company, and cost is passed back to consumer
- Higher price achieved provides greater living standards and money to invest in the farms of producers and their communities
46
advantages of fairtrade
- Minimum pricing means farmers get more income
- Certification allows farmers to negotiate higher price
- More income allows better farming, stronger co-ops
- Training farmers teaches them their rights
- Community development projects (schools, doctors)
- Flo-cert acts as a safety net for market price fluctuations
47
disadvantages of Fairtrade
- Extra cost for consumers and farmers
- Co-ops must meet standards, so poorest farmers can’t take advantage of the benefits of Fairtrade
- Price guarantees lead to overproduction
- Imposition of political views
48
Fairtrade in Africa
- Premium from Fairtrade goes back to community on schools, housing and healthcare
- 60% of total trade is target for Fairtrade products
- Diversification into vegetables resulted in 8x more income, less water dependent
