13.1 Trade flows and trading patterns

Question 1

factors affecting global trade

Answer 1

1. resource endowment
2. comparative advantage
3. locational advantage
4. investment (and foreign direct investment)
5. Historical factors
6. Terms of trade
7. changes in global market
8. trade agreements

Question 2

What protectionist measures impact imports?

Answer 2

Tariffs: taxes levied on imports, increase their price and make them less competitive (e.g US on Chinese EVs)
Import quotas and licensing, which limit the volume of imports
- regulations e.g on labelling, making importing more difficult
- exchange rates - lower to make imports more expensive/devaluation of pound
- formation of trade blocs (free trade between members)
- embargoes to stop trade/limit it e..g USA and Cuba

Question 3

What protectionist measures impact exports?

Answer 3

• subsidies: encourage concessions for producers of exports, e.g farmers in EU/USA
• export credits and guarantees
• establishing SEZ and encourage FDI
• exchange rates - lower to increase increase competitiveness of exports
• formation of trade blocs to encourage exports

Question 4

What is free trade?

Answer 4

hypothetical situation that does not restrict imports/exports, giving producers free and unhindered access to markets everywhere, removing barriers such as duty or customs

Question 5

what is a visible import or export

Answer 5

good/product that is traded/flows into/out of a country
- visible in that it can be touched or seen

Question 6

what is an invisible import/export

Answer 6

• product traded and flows in/out of a country
• invisible in that it cannot be touched or seen physically, e.g service

Question 7

what are the main changes in global economy

Answer 7

• emergence of regional trading blocs where members freely trade with each other, formation of trade blocs, such as EU and NAFTA led to trade creation
• many HICS trade in manufactured goods has fallen relative to its trade in commercial/financial services; many of these advanced economies have experienced de-industrialisation with less national output
• collapse of communism led to opening up of may former communist countries which have increased their share of world trade by taking advantage of low production costs/low wages
• NIC like india/china have dramatically increased world trade/manufacturing of exports

Question 8

how does resource endowment affect global trade

Answer 8

• having a surplus of something, e.g Middle East countries and crude oil
• drives specialisation in specific industries:
• mineral-rich countries (e.g Australia) specialise in mining and export commodities like iron ore/coal
• economic development can amplify/restrict exploitation of its resource endowment:
  = developed countries often have technology to process raw materials into higher value goods
• developing countries might focus on exporting raw materials due to limited industrial capacity

Question 9

how does comparative and locational advantage impact global trade

Answer 9

comparative: specialise in what you are best endowed in and then trade with other countries: e.g German cars, scotch whisky and belgian chocolates

locational:
- location of market demand - reduced transport costs
- e.g France benefits from tourists from Europe, Canada from US market
- Uganda - landlocked, locational disadvantage but Switzerland also land-locked but does well

Question 10

how does investment (and FDI) affect trade

Answer 10

• if you can attract invest,ent from overseas companies, e.g China, Brazil then that creates jobs/wealth
• in poor/corrupt/unstable LIC less likely FDI happens
• e.g Honda ub swubdib

Question 11

how do historical factors affect trade

Answer 11

• uk still trades with former colonies more than other countries
• neo-colonisation/language links help

Question 12

how do terms of trade affect global trade

Answer 12

• ratio of country’s currency earned from exports relative to price of its imports, can improve/deteriorate over time
• lower price of exports = improved competitiveness, increase number of exports so better for country

Question 13

issues of trade dependency

Answer 13

• primary produce dependency is when a country exports one good/service and imports everything else so very dependent e.g Zambia almost completely dependent on copper
• natural disaster could ruin whole crop, e.g earthquake ruined chilean wine industry
• issue of price fluctuations can deter investment and mean farmers cannot invest/plan for the future
• very inelastic supply/demand curves means prices are very volatile

Question 14

trade agreements

Answer 14

• e.g EU, ASEAN, NAFTA, RCEP
• types include: free trade areas (NAFTA) where agree to common rules between members but can have independent rules on imports from outside
• customs unions, e.g Mercosur, have same rules internally and externally
• common markets have free trade in goods/services plus free movement of labour/capital e.g EU

Question 15

example of economic unions

Answer 15

ASEAN:
- founded in 1967
- aims to accelerate economic, social and cultural development in the region
- 670 million people - 9% of world population
- $3.6 trillion GDP

Question 16

advantages of trade blocs

Answer 16

• FDI: larger markets created resulting in lower costs to manufacture products locally
• economies of scale: allows mass production to be allowed, permits EOS
• competition: bring manufacturers in numerous countries closer together, avoid tariffs resulting in greater competition, promotes greater efficiency
• trade effects: eliminate tariffs, drive costs of imports down allowing firms with comparative advantage to thrive
• market efficiency

Question 17

disadvantages of trade blocs

Answer 17

• regionalism vs multinationalism: bear inherent bias in favour of their participating countries, e.g NAFTA increased flow of trade between US, Canada and Mexico
• loss of sovereignty: EU more than trade matters now but also human rights
• concessions: country join trade bloc have to make concessions, e.g bilateral agreements between EU and African countries may have to allow multinational corporations to enter their home markets, making some local firms uncompetitive
• interdependence

Question 18

China trade war

Answer 18

Steel and electric vehicles:
- 2018, trump introduced 25% tariff on steel imports
- tariffs put in place to try and protect US steel manufacturers by making imported steel more expensive
- china imposed own tariffs on american goods, chinese steel producers started to shift to other markets

Electric vehicles:
- Biden introduced 100% border tax on electric cars from China in May
- As well as a rise from 25% to 100% on electric vehicle tariffs, levies on solar cells also increased from 25% to 50%
- components essential for EV production, such as lithium-ion batteries, electric motors and charging infrastructure parts were sourced from China, making it more expensive for US manufacturers to source these parts
- China retaliated with tariffs on U.S products, such as aluminum and steel, which has increased the cost of U.S automotive parts used in Chinese EV production.
- The higher tariffs on Chinese-made cars have deterred NIO. XPENG and BYD from expanding into the US market

Question 19

Example of fairtrade project

Answer 19

Kuapa Kokoo, Ghana:

Health:

• Provision of pump wells, bore holes and mosquito nets
• Mobile health services to 17 districts

Education
-Construction/refurbishment of eight schools and a block of six classrooms
- Construction of a three-classroom block and a teacher bungalow at Anakum. The school will serve Anakum and other communities nearby where children travel long distances to access school facilities.
- Implementation, in collaboration with Trading Vision, a UK based NGO, of the Fairtrade Education Programme in three schools in Ghana and several others in the UK, linking them through internet for cultural exchange

Farmer support:
- Seminars/workshops to help farmers to develop other means of livelihood for during the off-season; these activities aimed at empowering women
- Direct payment to farmers in the form of an end-of-year bonus
- Provision of new equipment including scales that reduce farmers’ dependency on the scales of middlemen and machines for cracking palm kernels, which greatly reduce the workload of women.

Community:
- Investment in 51 corn mills
- Construction of two day-cares centres

Question 20

what is free trade

Answer 20

• hypothetical situation that does not restrict imports/exports, giving producers free/unhindered access to markets everywhere, removing barriers such as duty or customs - trade liberalisation
• however in short term, liberalisation of trade can cause significant/unequally distributed losses and economic dislocation of workers in import-competing sectors (unemployment), as will just import goods from elsewhere rather than producing in own country
• in long run - get jobs in other more profitable sectors

Question 21

Key functions of the WTO

Answer 21

1. administering WTO trade agreements
2. Forum for trade negotiations and monitoring further trade liberalisation
3. Resolve trade disputes
4. increase transparency of decision-making process
5. cooperate with other major international economic institutions involved in global economic management
6. help developing countries benefit fully from the global trading system

Question 22

what are the three big areas of interest for the WTO?

Answer 22

1. Good General Agreement on Tariffs and Trade (GATT) for goods:
   - umbrella agreement for trade in goods, has annexes dealing with specific sectors, such as agriculture and textiles and actions taken against dumping
2. Services General Agreement on Trade in Services (GATS) for services:
   - businesses looking to do business abroad can now enjoy same principles of freer/fairer trade that og only applied to trade in goods
3. Intellectual property Trade-related Aspects of Intellectual property Rights (TRIPS):
   - rules for trade/investment in ideas and creativity
   - rules state how copyright, patents, trademarks etc should be protected when trade is involved

Question 23

Key trading meetings in WTO

Answer 23

Uruguay Round 1986-1993, 123 countries represented:
- led to creation of WTO
- led to major reductions in tariffs (about 40%) and agricultural subsidies

Dohan Development Round 2001-2008 - 153 countries negotiated:
- aim to establish better trade conditions for developing countries by offering them access to EU/US markets
- disagreement on both sides as would entail rich countries giving up farm subsidies

Bali package(2013):
- provisions for lowering import tariffs/agricultural subsidies
- developed countries would abolish hard import quotas on agricultural products from developing world and instead only allow tariffs on amount of agricultural imports exceeding specific limits

Question 24

Critiques of WTO

Answer 24

1. Unequal Power Dynamics:
   - disproportionately favours developed nations
   - Wealthier countries have more resources to influence trade negotiations and shape policies to their advantage, leaving developing countries at a disadvantage
   - Imbalanced Trade Agreements
2. Impact on Poorer Nations
   - Economic Inequality: Developing nations may struggle to compete in global markets because of structural disadvantages and an inability to implement protective policies like tariffs or subsidies
3. Environmental Concerns
   - WTO prioritizes trade over environmental protection
   - Resource Exploitation
4. Corporate Influence:
   - prioritizing the interests of multinational corporations,
   - Investor-State Dispute Settlement (ISDS): allows corporations to sue governments if their policies harm profits, potentially undermining domestic regulations on issues like labor rights, public health, and the environment
5. Lack of Transparency and Accountability:
   - Secrecy in Decision-Making
   - Exclusion of Stakeholders:

• takes time

Question 25

benefits of WTO

Answer 25

• helps to promote peace
• disputes are handled constructively
• rules make life easier for all
• freer trade cuts the cost oyttttf living
• provides more choice of products/qualities
• trade raises income
• trade stimulates economic growth
• basic principles make life more efficient
• governments shielded from lobbying
• system encourages good government

Question 26

concept of fair trade

Answer 26

producers of food and some non-food products in developing countries receive a long term and fair deal and guaranteed price, rather than prevailing market price, when they sell their products

Question 27

how does fair trade work

Answer 27

• small scale producers gather together as co-operative with high social/environmental standards, the co-operative deals with companies so cuts out middle men
• HIC companies pay above world market price with guaranteed min price to producer ensuring farmers do not make loss
• higher price raises living standards for growers/families
• social premium invested in social infrastructure like education/health

Question 28

advantages of free trade

Answer 28

• fair trade min price - avoid market fluctuations so more stable prices
• better prices for farmers
• safer working conditions
• no child labour
• social premium - community chooses how to invest in business/community projects

Question 29

disadvantages of free trade

Answer 29

• higher prices for consumers
• may reduce customer base due to higher costs
• limited product range
• fair trade certification carries significant fees for producer
• large scale buyers may not consider the products (if they cant produce enough)
• used as marketing tool to justify higher prices for consumers in rich countries but with no real benefit to producers in poor countries