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Global Interdependence > 13.1 Trade Flows + Trading Patterns > Flashcards

13.1 Trade Flows + Trading Patterns Flashcards

1
Q

What is global interdependence?

A
  • describes the world wide mutual dependence - individual countries rely on other countries to supply the goods + services they can not produce themselves = trade
  • countries have become more interdependent as many places do not have the raw materials + manufactured goods they need, so buy from elsewhere
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2
Q

What is visible trade?

A

Involves items that have a physical existence + can actually be seen

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3
Q

What is invisible trade?

A

Trade in services that include travel + tourism, and businesses and financial services

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4
Q

What is a trade deficit?

A

When the value of a country imports exceeds the value if it’s exports

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5
Q

What is a trade surplus?

A

When the value of a county’s exports exceeds its imports

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6
Q

What is terms of trade?

A

The price of a country’s exports relative to the price r of its imports, and the changes that take place over time

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7
Q

How does terms of trade impact global trade?

A
  • country’s that rely on low value exports + need high priced imports, will need to export large quantities to afford them
  • many LICs are primary product dependent = general low world market price
  • when the price falls, a country’s economy will see a sharp fall in export income = higher trade deficit = can’t fund state led investment in education, healthcare + infrastructure
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8
Q

Example of terms of trade?

A
  • Zambia’s main export is copper
  • 2000-2010 the Zambian economy grew by 7% due to high price of copper which was 80% of their exports
  • this boom ended in 2011 - copper prices fell + Zambia had to borrow money to spend on infrastructure
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9
Q

What is resource endowment?

A

the natural occurrence of resources in a country

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10
Q

How does resource endowment affect trade?

A
  • country’s that are endowed with a particular resource control + dominate world trade of that resource
  • HOWEVER - this is dependent on value of export = agricultural products are low value + puts these countries at a disadvantage due to fluctuations
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11
Q

Examples of resource endowment?

A
  • OPEC made of many Middle Eastern countries regulate oil prices by controlling oil supply —> increase in supply = decrease in price + vice versa
  • 80% of Uganda’s exports are agricultural products —> overproduction of e.g. coffee between 1995-2000 led to a fall in export price + their ability to earn foreign currency
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12
Q

What is comparative advantage?

A

idea that countries will specialise in producing specific goods + services in which they are best endowed

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13
Q

How does comparative advantage affect world trade?

A
  • a country will trade its good to other countries to obtain the goods + services it needs
  • HICs often specialise in high value goods rather than primary goods
  • some countries dominate the production of manufactured goods through trade blocs
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14
Q

Example of comparative advantage?

A
  • Japan is a big producer of high-tech + Germany of cars
  • EU is a major trade bloc which charge high tariffs on imports outside of the bloc = protecting HICs + creating an unfair advantage as businesses in NICS/LICs find it difficult to compete in the world market
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15
Q

What is locational advantage?

A

When location of market demand influences trade patterns

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16
Q

How does locational advantage affect world trade?

A
  • advantageous for an exporting country to be close to the market for its products = reduced transport costs
  • some countries/cities are strategically located along important trade
  • location can pose disadvantageous to some LICs, such as those in sub-Saharan Africa
17
Q

Examples of locational advantage?

A
  • tourist industry in France benefits from large populations in neighbouring countries
  • Canada’s manufacturing industry benefits from proximity to huge US markets = 70% of their exports went to the US in 2016
  • Singapore located on the main route between India + Pacific Ocean
    IN CONTRAST..
  • south-Sudan is land-locked + unable to get to transport links in Sudan due to conflict between the two countries
18
Q

What is investment?

A
  • act of committing money or capital to an endeavour with the expectation of obtaining additional income or profit
19
Q

How does investment affect world trade?

A
  • investment is key for many countries to increase trade + growth
  • the amount of money TNCs invest is dependent on the security of their investment, which relies on the economic, social + political stability of the country
  • most likely to invest in NICs = established infrastructure + low labour costs
20
Q

Examples of investment?

A
  • sub-Saharan African countries not attractive for investment —> political unstable = conflict in South Sudan + Sudan, poor infrastructure + no trade links due to land lock nature
  • NICs such as China highly attractive = China is now a leading export country
21
Q

How does historical factors affect world trade?

A
  • historical international relations such as colonial ties e.g. commonwealth led to world wide trade dependency + why poorer tropical countries have limited share of world trade
22
Q

Examples of historical factors

A
  • UK still has strong trade links with countries within the commonwealth —> historically they exploited LICSs in the empire to boost England’s economy
  • made LICs unable to develop like LICs outside of empire
23
Q

How are changes in the global market affecting global trade?

A
  • rapid growth of NICs have bought economic strength = BRIC countries (Brazil, Russia, India + China) are known as emerging economies
  • enabled rapid industrial growth, technological development + employment opportunities
  • sub-Saharan Africa still not seen these benefits = primary product dependent = vulnerable to trade inequalities
24
Q

Examples of changes in the global market?

A
  • the developed country grew at a rate of 2.1% in the first decade of the 21st century —> emerging markets grew at 4.2%
  • HICs controlled 64% of the global economy in 1990 —> fell to 52% by 2009
  • apparel industry has opened doors for international trade for Bangladesh = enabled through invest,ent by TNCs
25
Q

How are trade agreements affecting world trade?

A
  • trade bloc = countries that share trade agreements between each other —> regional trade agreements have increased in the last 20 years
  • those outside trade blocs disadvantaged due to being subject to tariffs = limiting their economic development
26
Q

Examples of trade agreements?

A
  • 1990 = fewer then 25 trade agreements
  • 1998 = more than 90
  • e.g. EU, NAFTA, ASEAN
27
Q

What is the WTO?

A
  • deals with the rules of world trade = primary function is to ensure that trade flows as freely as possible
  • established in 1995
  • permanent organisation that has the power to arbitrate trade disputes
28
Q

Benefits of the WTO?

A
  • overall very successful = average tariffs are only a tenth of what they were before 1995 under GATT + world trade has been increasing at a faster pace than GDP
  • It promotes free trade which raises incomes, increases standard of living + stimulates economic growth
29
Q

Limitations of the WTO

A
  • in some areas protectionism (e.g. using tariffs on imported goods) is still an issue, particularly in clothing, textiles + agriculture
  • critics believe the WTO should be paying more attention to the needs of LICs, making it more easier for them to be involved in fair trade + gain from the global economy
  • HICs are often given decades to adjust their economies to the removal of tariffs on imports of textiles + agricultural products from LICs - but LICs are pressurised to open their borders immediately to banks + telecommunications companies + other services from HICs
30
Q

WTO + India

A
  • India joined the WTO in 1995 + were immediately forced to drop all their tariffs
  • this put India at a disadvantage as they didn’t have time to adapt their economy, which early members of GATT were granted
  • this led to a flood of foreign imports from countries such as USA, Malaysia + Thailand —> leading to a sharp fall in price of India’s domestic food goods
  • e.g. price paid for coconuts dropped by 80% because everyone is buying the cheaper foreign imports, undercutting local producers
31
Q

Why did the USA impose tariffs of 30% on steel imports?

A
  • US needed to protect its fragile steel industry = more than 30 US steel producers were made bankrupt 1997-2002
  • there was also a serious over production problem with the world steel making capacity being 20% higher than current demand
  • the US were considered inefficient + high cost compared to their foreign counterparts, with strong union presence demanding higher wages + health insurance
32
Q

How did America’s trading partners react to the steel war?

A
  • not happy = trade unionists warned that the new trade barriers imposed by the US could lead to 5000 job losses in the UK + 18,000 in Europe
  • the countries affected argued the US was breaching WTO rules
  • these countries also demanded compensation from the US for the effect of the tariffs
33
Q

How successful was the WTO in dealing with the steel war?

A
  • would take up to two years for the WTO to reach a judgement, therefore significant damage could be done in the intervening period to the steel industries of those nations affected
  • EU stated that any retaliatory action would be within WTO rules
  • overall this dispute was the last thing that the global steel industry (worth $500 billion) needed
34
Q

Criticisms of WTO in relation to free trade

A
  • fundamental issue = does free trade benefit all those concerned? Or is it a subtle way in which rich nations exploit their poorer counterparts?
  • most critics of free trade accept that it does generate wealth but they deny that all countries benefit from it
  • e.g. India
35
Q

Effectiveness of WTO in solving trade disputes?

A
  • members are expected to seek recourse through the WTO’s dispute-settlement system rather than take direct action themselves
  • over 400 disputes were brought to the WTO 1995-2011
  • less than half resulted in the establishment of a dispute panel
  • more than 90% of rulings have been complied with by responding countries
  • less than 4% resulted in sanctions by complaining countries
  • average time taken in panel proceedings is 10 months, where as in other international organisations or national courts time taken can be 2 to 5 Yeats
36
Q

Trade wars between US + China (2018-2021)

A
  • role of WTO had little impact = trump continued to impose tariffs + took little notice of WTO decisions
  • US GDP down by 2.5% + world economy down by 1% as result of the trade war
  • 4 years on US imports from China have only recently returned to pre-trade war levels
  • case was first brought to WTO by China + US could not justify tariffs = two rivals resorted to “self-help” without using WTO dispute settlement system
  • questions the role of the WTO as an adjudicator in trade disputes
37
Q

What is the nature/role of fair trade?

A
  • the fair trade foundation is concerned with introducing better pricing, suitable working conditions + fairer terms of trade for farmers + workers in LICs
  • for products such as coffee, cocoa, cotton etc. Fairtrade supports small scale operations in order to guarantee farmers with a stable income
38
Q

How does fairtrade support small scale farmers?

A
  1. Guaranteeing a minimum price for their products = if the market price is higher than the minimum price for that product, the farmers + workers receive the market price. If the market price falls below the minimum they will be payed the higher, minimum price
  2. Farmers receive a fair trade premium = an additional sum of money paid on top of the fairtrade minimum price that can be invested into social, environmental + economic projects to improve their business + community
  3. Supports plantations through companies that employ large numbers of workers on estates = they protect workers rights through health + safety, protect working conditions + introduce measures found in HICs
39
Q

Fair trade in Ghana

A
  • Cocoa farmers in Ghana who are part of the Kuapa Kokoo have a minimum fair trade price set at $1600 per tonne
  • they receive a premium of $150 per tonne = used to invest in more sustainable farming methods to ensure the long run of cocoa farming e.g. maintaining soil health + water supply through good agriculture management —> this provides security for the future
  • collaboration between the Kuapa Kokoo + the body shop, Christian aid + comic relief led to the formation of divine chocolate company in 1998 = sold in Uk, Netherlands + USA —> provides fair prices + shares profits made to go towards community projects
  • all this improve the lives of farmers in LICs

Global Interdependence (4 decks)

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