13.1 Trade flows and trading patterns

Question 1

globalisation

Answer 1

countries drawn together into a single global economy

Question 2

trade

Answer 2

the buying and selling of goods and services between countries

Question 3

imports

Answer 3

goods or services bought from other countries

Question 4

exports

Answer 4

goods or services sold to other countries

Question 5

Balance of trade

Answer 5

the difference in value between a country’s imports and exports

Question 6

Trade deficit

Answer 6

When a country’s imports exceed it sexports in value

Question 7

Trade surplus

Answer 7

When a country’s exports exceed its imports in value

Question 8

Visible goods

Answer 8

tangible products that can be seen and touched such as manufactured goods, raw materials, food products

Question 9

invisible goods

Answer 9

services and intangible products such as banking services, tourism, intellectual property rights

Question 12

What are the five factors affecting trade flows

Answer 12

1. Resource endowment
2. Locational advantage
3. Historical ties
4. Trade agreements
5. Changes in the global market

Question 13

Explain how resource endowment can affect trade, with an an example and a counter argument.

Answer 13

The higher the resource endowment, the higher the trade. For example oil rich countries in the OPEC group like Saudi Arabia’s revenue from the oil and natural gas industry composes of 50% of the nation’s total GDP. However some countries are resource rich but have low trade such as the Democratic Republic of Congo which does have a high reserve of oil however as it is a hinterland, there is poor accessibility for the oil to be transported.

Question 14

Explain how locational advantages can influence trade. Give an example and a however…

Answer 14

The geographical location of the countries can influence the trade as it links to the cost of transport. Countries on coastal areas would have a locational advantage over landlocked countries. In addition a country’s strategic position on a trade route would highly increase trade eg Singapore being by the Strait of Malaca, Egypt by the Suez Canal and Panama by the Panama Canal. For example, Singapore a small island with a lack of natural resources is highly developed with a high trade flow due to its strategic position on the important trade route from the West to the East by the Strait of Malaca. Singapore also acts as a good natural port with deep water and how it’s sheltered. However, Switzerland which is a landlocked country surrounded by the Alps doesn’t benefit from its locational advantage but still has a high trade flow with chemical products and pharmaceuticals bringing a high trade value to Switzerland’s exports

Question 15

Explain how historical ties can influence trade flows + example . Negative of this

Answer 15

Historical ties such as colonialism of certain countries would have established trade links from the colonial period. Countries like Ghana which has now gained independence form the UK still have remaining trade links which back to the historical ties. Ghana as a developing country primarily exports commodity goods like cocoa where the UK is still the top 5 importer of cocoa from Ghana.

However, because there is a set farming season, cocoa enters the market at the same time in large volumes which means that consumers have a high bargaining power and some have even called the relation between the UK and Ghana a form of neocolonialism as Ghana as developed somewhat of a trade dependency to the UK

Question 16

Define neocolonialism

Answer 16

The control of less developed countries by more developed countries through economic, financial, trade policies (indirect control)

Question 17

Define trade dependency

Answer 17

When a developing country relies on its advanced trade partners

Question 18

Define what is mean by a trade agreement and what are its aims?

Answer 18

Any contractual agreement between states related to the trade relationship. This aims to reduce trade barriers, and increase trade flows between states

Question 19

How can the changing global market affect trade

Answer 19

The growth of NICs (newly industrialized countries) such as BRICS leads to an improvement in education and transport/infrastructure brings in FDI where there is a rise of employment in the manufacturing industry (this has mostly been in Asia) which creates a global shift. As a consequence of globalization, the flow of FDI and NICs has increased where de industrialization of Western countries has occurred.

Question 20

What is a free trade agreement, give an example of one

Answer 20

FTAs removes tariff and offer quotas among member states, some commodities are also protected.
An example is NAFTA (North American Free Trade agreement) —> USA, CANADA, MEXICO

Question 21

What is a custom union, give an example

Answer 21

Custom unions have free trades as well as common external tariff on imports for non member states. This means that the member states have to agree not the same tariff to goods from outside this union. An example is how Andorra, Monaco, San Marino and Turkey joined together to form the European Union Customs union

Question 22

What is the common market/single market. Give an example of this

Answer 22

The common market is essentially the same as custom unions + the free movement of goods, services, labor and capital investment. An example can be the EEA (European economic area) where Iceland, Lichtenstein and Norway partnered together.

Question 23

What is an economic union, give an example of this

Answer 23

Economic unions include all the benefits of the common market + have common economic polices eg policies regulating the agricultural and transport industries. This is the highest level of economic integration. An example is the EU which is the largest trade bloc which also uses common currency

Question 24

What are SEZs and what are its key characteristics

Answer 24

SEZs are special economic zones which offer no tariff on imported goods as long as the goods stay int he SEZ. These are usually along the coast as it has access to ports. This can also encourage TNCS to set up the manufacturing hubs in this zone. An example of an SEZ is the Hainan Province in China.

Question 25

What are some factors influencing the movements of TNCs to NICs

Answer 25

• A large population growth in NICs means a large workforce eg India. When there is a larger supply of workers, the labour often becomes cheaper
• Improvement in education in NICs —> means the workers are skilled enough
• Improvement in transport/infrastructure —> men’s its easy to import/export
• Government regulations and policies can also encourage TNCs with some countries offering financial incentives like tax breaks for example Vietnam which offers tax holidays to high tech sectors like electronics where they are exempt from corporate income tax for the first 4-8 years of operation. This has attracted Samsung Electronics. In addition, setting up SEZs can also attract FDI

Question 26

What is are the aims of the World Trade Organisation?

Answer 26

The WTO exists to promote free trade, resolve trade disputes and remove protectionism. They also encourage predictability in the market through binding and transparency as well as offering fair competition

Question 27

Define protectionism

Answer 27

The institution of policies (tariffs, quotas, regulations) that protect a country’s industries against competition from cheap imports

Question 28

Pros of the WTO

Answer 28

• Increased number of trade disputes brought to the WTO —> showing that WTO is the stage for helping trade disputes
• Help the developing countries/ emerging countries fight against the developed countries that has more power
• 166 members (represents 98% of global trade) —> can control the trade regulations
• No major trade wars

Question 29

What are some of the criticisms of the WTO

Answer 29

• Free trade may prevent developing countries from developing their infant industries
• many developing countries feel that their concerns are largely ignored
• environmental groups concerned, for example;e about a WTO ruling that failed to protect dolphins from tuna nets
• labour unions in some developed countries, notably the USAs concerned about the threat to their members’ jobs as traditional manufacturing filters down to LEDCs and violation of ‘workers rights’ on developing countries

Question 30

What is meant by the terms of trade

Answer 30

This refers to the price of a country’s exports relative to the price of its imports and the changes that take place overtime

Question 31

What is FairTrade

Answer 31

This is a movement that aims to create direct, long-term trading links with producers in developing countries, and to ensure that they receive a guaranteed price for their products, on favorable financial terms. The fairtrade mark means that Fairtrade ingredients in the product have been been produced by small scale farmers that meet Fairtrade social, economic and environmental standards.

Question 32

What are the characteristics of Fairtrade

Answer 32

• small scale producers are grouped together —> co-operative
• Deals directly with the companies to cut off the middlemen
• Offers the stability of income and wages above normal market price for the workers
• Some money (social premium) is returned to improve the standard of living of the people in the co-operative, which they can decide themselves how they want it to be invested

Question 33

What are the benefits of Faitrade

Answer 33

Improve the standard of living of the families that joined fairtrade
- as the social premium money is re-invested back to the communities for education, healthcare, machines etc
- local communities have the right and voice to say how they want the money invested - characteristics of a bottom up scheme
- better training for the local producers to ensure the products meet the standard

Question 34

What are some criticisms of fairtrade

Answer 34

• Money that returns to the farmer is still low
• Hard to meet the fairtrade standard —> farmers invest in machines, fertilisers, pesticides first —> meeting standard to join fairtrade
• Illegal farming/illegal migrant workers —> fairtrade may ignore