3.2.1.3 International trade + access to markets Flashcards
what is comparative advantage
- countries should specialise in providing goods + services that they excel at producing
—> can then trade these for things they aren’t as good at producing —> trade exchanges= fewer barriers to trade
what’s free trade
trade without tariffs, quotas + restrictions—> WTO replaced GATT to try to + aim for more of this
what are barriers to trade + protectionism
TARIFFS- tax on imports to protect industry (means consumers buy less imports from foreign countries —> protects industries within country)
IMPORT LICENCE- licence issues by government authorising importation of goods from a specific source
IMPORT QUOTA- physical limit on quantity of goods that can be imported
SUBSIDIES- allowance awarded to domestic producers to make them more competitive against imported goods
EMBARGO- prohibition of commerce + trade with a particular country
TRADE RESTRICTIONS- import restrictions based on quality standards/way they are produced
features and trends of global trade
- volume of trade increase but fluctuates
- growth of trade blocs = some decrease in trade barriers
- recessions + global shocks = trade stalls= hard to predict recovery rate
- LICs joining global trade BUT growth is slower —> African countries (2023) only accounted for 3% of global trade
- NEEs are catching up with HICs as traders
- growth in ethical trade e.g. FairTrade
factors driving current patterns of global trade
- comparative advantage
- proximity (countries more likely to trade with neighbours, reduced transport costs etc)
- agglomeration (industries cluster together in area to share skills, info + save costs)
- Market size + strength (exporters more drawn to big, affluent, growing markets with potential to increase sale volume)
- geopolitical relationships (political alliances determine which countries co-operate + trade with each other. Conflict= sanctions, embargos
who dominates world trade, is the fastest growing region
China, Europe, N. America= dominate
Asia Pacific= fastest growing region
trade blocs what do they do
trade groups
often done regionally
they eliminate barriers internally + can apply trade barriers externally
differential access to markets
- access to international markets= limited by tariffs, quotas etc
developed- can afford tariffs, have TNCs= they avoid tariffs, group to form trade blocks
LDEs- struggle to pay tariffs, harder to invest in other countries, difficulties entering agreements on trade, primary sector dominant which is unattractive
trading agreements advantages
- improves access to international markets
- helps LICs that can trade freely at lower prices
- more leverage when trying to gain access to other markets
- LDEs have more access to markets if they’re trade group makes agreements with another group
trade agreements disadvantages
- restricts ability to negotiate new deals + expand trade beyond bloc
- may remove protection to growing domestic industries b4 they’re strong enough to compete
- countries left out= isolated + have to overcome barriers
Special and differential treatment agreements (SDTs)
- used by UN for worlds poorest countries to give them access to markets, trading partners have the right to restrict imports so markets can flourish
- freedom to subsidise exports
BUT SDTS can cause a flood of cheap goods into HIC markets= undermines HIC industries—> so SDTs are replaced by bi-lateral agreements
other issues: - labour right violations, environmental degradation etc
fair trade
- works with farmers + workers to improve living standards, invest in communities + businesses, protects environment
- different to free trade because considers welfare of producers + workers + ensures fair wages
examples: - banana farmers + workers —> FairTrade works with them to ensure price is more reflective on labour
FDI- features and trends of global investment
- FDI increased a lot (1996-$400bn vs 2016-$1500bn)
- patterns of investment shifted from HICs to HICs and now HICs to NEEs (NEEs are also a source of FDI now)
- person/company spends money in other countries to generate a profit
- rise in ethical investment—> investors avoid companies that damage environment etc
- investors attracted to market size, stability, raw materials, human resources (uneducated labour)
Chinas FDI to African countries (NEE to LIC)
China to Egypt
- partnership as part of Belt + Road initiative
- China sets up its industries to produce ammonia + green hydrogen
- extends Chinas position along key trade routes + more access to markets e.g. Egypts energy + raw materials
__> meanwhile it reduces unemployment in Egypt —> encourages industrialisation + infrastructure in Egypt’s economy
China in Nigeria
- FDI on coastal railway —> meant more work for Chinese workers, more access to Nigerias developing ppl- selling them products —> China did this for soft power —> Nigeria needs money —> they can develop infrastructure =facilitates trade for Nigeria= strengthens Nigerian currency + allows for diversification
what is CPTPP
- trade agreement between 11 countries in Asia Pacific (UK wants to join + did in 2023= it expanded from just Asia Pacific to European country (UK) —> needed after Brexit
- it lowers tariffs, has provisions to uphold labor rights, environment, protectionism
- ensures fair treatment for investors
- may expand further in future to other countries
CPTPP how does it help/not help TNC, Individual, environmentalist
TNC
- reduced tariffs
- possibility for expansion
- easier supply chain integration
- access to markets + integration
- but TNC has to bide by all rules —> though these rules may stable env.
Individual
- cheaper goods access
- increased range of goods
- may not see economic benefits
- farmer may get produce sold overseas
environmentalist
- more trade= more greenhouse gas emissions
- concerns on food safety + farming + env standards
- palm oil= linked to deforestation
- animal welfare
trade impacts - economic
positive
- competition = cheap prices + greater variety of goods + services
- greater division of labour= greater efficiency in production (more profit)
negatives
- infant industries can’t establish themselves (due to too much competition)
- transport costs
- domestic instability because of dependence on fossil fuels
trade impacts- social
positives
- societies resources are allocated efficiently (no waste)
- exchange knowledge- society benefits
-enhanced quality of goods
negatives
- pollution to environment/health of people
- unemployment- uncompetitive
- greater division of labour ( some countries provide low paid jobs)
impacts of trade on people’s lives- trade between NEES + developed countries
- Apple products developed/manufactured in China —> Chinese workers= US$600 a month + gain access to better devices —> development of people —> Apple shareholders in USA also benefit from sales
- TATA (Indian steel company) —> there threatened 30,000 Welsh workers, but india= increased share in world trade
impacts of trade on people’s lives- trade between developed countries + LDCs
- TNCs e.g. M&S, Tesco= source raw materials from LDCs
- Global agribusinesses buy large areas of land in LDCs + employ people in agricultural estates (but low pay)
- quality of life for LSC farmers = poor + competitive (if too many countries produce same thing)
- developed countries tax agricultural imports = hard for LDC farmers to sell
impacts of trade on people’s lives- trade between NEEs + LDCs
- Chinese manufacturing companies = moved factories to Ethiopia—> Ethiopia can now trade merchandise(not just raw materials), GDP increase
—> China lending SWF money to LDCs = build education etc
what are 2 important emerging economy groups?
BRIC
MINT
what’s BRIC
Brazil
Russia
India
China
- 4 large economies who are key in world trade
- all have land, mineral-rich, large potential home-market
- China= number 1 exporter of goods
what is MINT
Mexico
Indonesia
Nigeria
Turkey
- 4 fast growing economies
- Nigeria = big exporter of oil
- all countries are manufacturing hubs
trading characteristics - emerging economies
- rapid factory expansion and industrialisation
- some countries specialise in goods + services
e.g. China + Bangladesh = ‘the workshops of the world”, India + Philippines are hubs for call centres, Thailand play an important role in agriculture + manufacturing
trading characteristics- less developed economies
- agriculture + raw materials trade
- some countries try to divert e.g. into tourism
—> Rwanda encourages tourism into its mountain genillas
trading characteristics- developed economies
- office work
- services
- trade in high-tech manufacturing e.g. Germany
recently…
- tariffs reduced to 1/10th of level in 1947
- since financial crisis (2008-9) global agreements are more difficult to reach
- N. America, Europe, east Asia= dominates world trade
- China= largest growth
- Trans-Pacific trade= growth faster than Trans-Atlantic
other facts
- 10 nations account for more than 50% of global trade
- global trade value + GDP= risen by 2% since 1945
- GATT was replaced by WTO who aims to lower barriers to International trade and an for “free trade”
HDEs - USA
- ‘Protectionist’ economy (reluctant to join free trade agreements)
- FT agreements were being negotiated with Asia-Pacific countries in TTP + EU in TTIP during Obama —> But Trumps protectionist policies= multi-lateral trade agreements were reversed + withdrawn
- NAFTA negotiated to form USMCA
- Trump prefers bi-lateral deals
now: - USA has CAFTA-DR
- USA has agreements with Australia, Israel, Singapore, Morocco etc
- phase one agreement= with Japan= in construction (focusing on critical minerals)
HDEs- The European Union
- EU= customs union (protectionist in its own way)
- 27 members who trade freely with each other —> tariffs on ppl/countries outside union (except those in EFTA) —> however the tariffs have reduced + trade deals with Australia etc are being made
- 65% of trade= intra-regional
- loss of UK from EU= detrimental—> as UK was big contributor to funds + attracted FDI —> few trade deals with EU were re-negotiated
- trade agreements with USA = hard to foresee due to disagreements on farming standards
- anti-free trade sentiment = growing
—> e.g. farmers in Belgium, France, Netherlands= unhappy with cheap sugar + beef imports
—> e.g. environmentalists not happy with Brazilian cattle filled with chemicals + not complying with EU standards
LDEs- Latin America
- Pacific alliance formed in 2011 with Mexico, Chile etc
—> its open to bi-lateral trade agreements—> Asia-Pacific= its main market—> some countries in pacific alliance are having fast growth - main trading blocs are Mercosur + Pacific Alliance
- Mercosur- with Brazil, Argentina etc —> free movement of labour, largest exports= raw materials, energy, food (makes it vulnerable to fluctuating global trade prices —> main markets = EU, N. America
Future: - going to be an important trading partner —> might merge with South American nations/countries
LDEs - Sub-Saharan Africa
- main trading partner= Europe (but is changing to China) —> China investment into infrastructure for mainly China benefit BUT it increases flows + integration of African nations
- African continent Free trade area (AFCFTA) —> 5 main regional trade groups (formed in 2018, world largest free trade group (has 54 out of 55))
—> in increases intra-regional trade deals—> African nations have more power now in global trade —> BUT it may disadvantage the poorest if supportive policies aren’t put in place more policies etc could occur - trading is more disadvantaged + less integrated
—> minimal intra-regional trade
main exports= primary
lack of skills, transport + energy + infrastructure = investments discouraged
relies on imports of manufactured goods - has many language + cultural divisions
NEEs- China
- fast growth rate due to expansion of manufacturing industry due consumer goods in rich countries - emerged on worlds major trading power —> 20% of all global exports + 15% of global imports
- patterns:
—> importing raw materials from developing countries ( Latin America, Sub-Saharan Africa)
—> exporting processed goods to developed countries - trade with USA due to export of cheap, subsidised steel —> resulted in high tariffs in goods traded between 2 countries + in static growth in world trade
- Belt + Road initiative
- Famine in 1960s
NEEs - India
- sustained fast industrial growth for 25 years
- more diverse economy than China with a more globally integrated commercial + service sector
- good english speakers = has trade history with western Europe BUT trade with Middle East + Asia is now growing
- 2018- imports expanded faster than exports= balance of payment problems= economy vulnerable due to deficit (US $166bn)
- top exports= refined petrol, rice, cars, diamonds etc (go to EU, USA, China etc)
top imports= crude oil, gas, coal (from China, USA etc) - famine in 1960s —> green revolution stopped this but agricultural workers lost jobs + moved to urban areas for work —> demographic dividend of young workforce = FDI more attracted= industrial development
TNCs what do they do
- build bridges between nations
- architects of globalisation
they link groups of counties through production of goods - they connect people in different countries by shaping common factors of consumption e.g. Macdonalds, Disney
- they invest internationally (FDI) + expand through acquisitions (taking over other companies + mergers (joining with rival companies)
- they use sub-contractors to manufacture products e.g. Apple use Foxconn in China to make ipads
- TNCs are helped + hindered by trade blocs who can make importing/investment easier or harder
key term- TNC
corporations/companies operating in 2+ countries with headquarters + business operations in many other countries
key term- hierarchical model
- imposes top down decision making. top are initiating change, bottom carry it out
key term- vertical integration
- where one company owns/controls multiples stages in production
- they produce everything themselves
- e.g. Starbucks involved in every stage of its supply chain from growing + processing coffee beans to msking + selling cups of coffee
key term- horizontal integration
process of business enlarging or varying its range of products or field operation-> e.g. Kraft taking over cadbury in 2010
key term- vertical disintegration
TNCs bypass production + supply completely by sourcing products + raw materials from already established suppliers rather than directly producing or employing to produce e.g. Foxconn used by Apple in China to make ipads
key term- glocalisation
products/services that are distributed globally but fashioned to appeal to the consumers in a local market
key term - agglomeration
when companies in similar industries locate near each other as they can benefit and share ideas and resources
key term- multiplier effect
when an initial injection of investment or capital into an economy creates additional income e.g. TNC creates jobs —> ppl have incomes —> ppl spend money etc
key term- supply chain
sequence of processes involved in production of + distribution of commodity from raw materials to finished product
key term- diversification
improving links between TNCs by acquiring competitors in the same industry + using same structures to make cost savings
key term- spreading of locational risks
when TNC finds it advantageous to distribute businesses in many countries so union disputes, government instability, financial uncertainty in 1 country doesn’t disrupt overall production
key term- flexibility of production
being flexible where you locate to enable cheaper labour, flexible workforce, government incentives, better climate etc
what are characteristics of TNCs
operate in more than one country
globally integrated enterprise
TNC characteristics- operating in more than one country
- escape trade tariffs e.g. Nissan produce cars in Sunderland = barrier free access to EU market
- lower cost location for production (especially labour)
- take advantage of foreign exchange rates so exports are cheaper
- reach foreign markets effectively such as Mcdonald’s
- exploit mineral/other resources available in foreign countries
TNC characteristics- globally integrated enterprise
- as they located different functions of business anywhere + integrate production and deliver value worldwide
- source raw materials/compoenents at lower cost
- branding of products/ services so recognisable
- outsourced production
- control key supplies + each stage of production
- maximise global economies of scale by organising production to reduce costs
TNCs spatial organisation
- headquarters generally in city in an advanced country where they first established e.g. Apples is in California
- research + development is most likely at headquarters in another area within the same country
- branch plant is located overseas where cost are minimal. these may vary according to industrial sector.
TNC production
- manufactur in developing countries due to labour, education, government incentives, work ethic (ppl more willing to work long hours at low cost), have more resources etc
- locate service based industries (tertiary sectors in places with low costs balance with language, education + human resources
TNC- offshoring
relocating part of the organisation e.g. manufacturing operation to overseas location to take advantage of lower costs or access to new international markets
- individual TNCs location factories in higher wage economies e.g. Toyota locating in UK + US to access wealthier markets
TNCs - outsourcing
strategy that incomes subcontracting part of the business operation to another company, usually to another country where costs are lower e.g. Apple using Foxconn
TNCs- linkages between countries through investment
MERGERS- when two companies (usually of similar size) agree to become one bigger company- links the countries where two firms operate
ACQUISITIONS- one company buys another (usually smaller) company
SUBCONTRACTING- TNCs use foreign companies to manufacture products without actually owning the business (links countries together)
FDI- flows associated with linkages above
VERTICAL INTEGRATION- company takes over other parts of their supply chain e.g. Shell owning all operation from extraction, refining, transportation, sales, marketing
HORIZONTAL INTEGRATION- company merges or takes over another company at the same stage of production
TNCs- reshoring
- when a business returns production/operations to host country that had previously been moved to a different international location
Reasons: - wages and labour costs increasing overseas
- greater certainty about quality
- receive complexities and risk of disruptions in supply chain
TNCs marketing patterns GLOCALISATION
e.g. Mcdonald’s
—> Japan: Teriyaki burger, seaweed fries
Canada: McLobster
- Heinz added flavours that Indians prefer
- Disneyland in Hong Kong reduced prices, changed decorations = more popular now
why glocalise?
- more appealing to customers
- expands market globally
benefit for local economy?
- job opportunities
- increased FDI for economic growth
- more available variety of goods + services
positive impacts of TNCS
- employment (job opportunities = positive multiplier effect)
- investment- TNCs outsourcing + offshoring = maximise profits= brings FDI to LDEs
- trade TNCs increase trade between countries
- tech transfer + TNCs introduce new methods of production = improve productivity + create further jobs
- economic development- due to FDI + employment so LDEs then can grow and improve living standards
- TNC growth= higher profits + more tax paid which host governments can use to boost living standards
etc - TNCs can set high environmental standards as a result
- local supply chains created= growth + jobs
- TNCs demand infrastructure + communications benefit local ppl
TNCs negative impacts
- environmental degradation- TNCs exploits natural resources and cause pollution during production process and transport
- exploitation of workers (sometimes forced to work long hours for low pay in poor conditions)
- closure of local businesses as can’t compete with TNC
- increasing inequalities- profits from TNCs not evenly distributed, rich ppl get richer + poor see few benefits
- loss of culture- cultural differences disappear as TNCs spread Western cultural values + ideas
- abandoned production locations = derelict land due to deindustrilsation
- outsourcing TNCs may become unpopular + suffer negative media coverage + falling sales
- TNCs post no/very low taxes e.g. Amazon paid only £2.4mill corporation tax in £4.2bn of sales in UK
- depletion + exploitation of natural resources
Fair trade (FAT) vs free trade (FRT)
FAT- aim to help farmers by offering a financial lifeline (guaranteed price paid for produce even when prices are fluctuating)
FRT- benefits everyone as maximises trade with other countries on activities they have a comparative advantage
BUT reality—> overproduction = lowered market values= independent farmers have to sell at low prices
Fair trade (FAT) vs free trade (FRT)- main goal
FAT- to empower marginalised ppl + improve quality of lives
FRT- to increase a nationals economic growth
Fair trade (FAT) vs free trade (FRT)- focuses on
FAT- commerce amount individuals + businesses
FRT- trade policies between countries
Fair trade (FAT) vs free trade (FRT)- primarily benefits
FAT- vulnerable farmers, Asians + workers in less industrialised countries
FRT- multinational corporations, powerful business interests
Fair trade (FAT) vs free trade (FRT)- critics say
FAT- interferes with free market, inefficient, too small scale for impact
FRT- punishing to marginalised ppl + environment, sacrifices long-term
Fair trade (FAT) vs free trade (FRT)- major actions
FAT- businesses offer producers favourable financing, long-term relationships, minimum prices + higher labour + environment standards
FRT- countries lower tariffs, quotas + labour + environment standards + environment standards
Fair trade (FAT) vs free trade (FRT)- producer competitor determined by
FAT- living wage + community improvement costs
FRT- market + government policies
Fair trade (FAT) vs free trade (FRT)- supply chain
FAT- includes fewer parties, more direct trade
FRT- includes many parties between producer + consumer
Fair trade (FAT) vs free trade (FRT)- key advocate organisation
FAT- Fairtrade labelling organisations, International, World Fair trade organisation
FRT- WTO (world trade organisation), world bank, IMF
advantages of international trade
- comparative advantage
- economies of scale- producing narrower range of goods = country can produce in higher volumes + lower costs
- purchasing power- more competition= prices are lowered= can buy more with money
- fewer domestic monopolies
- transfer of technology —> new tech = design improvements + cost savings etc
- increased employment due to more production—> multiplier effect
- access more variety + affordable goods
- get out of poverty
- economic growth and GDP growth
- more opportunities in tech sectors
- more job opportunities
disadvantages of international trade
- over-specialisation- not good if demand falls (e.g. Ghana over dependent on Cocoa), comp does better, normally less flexible + diverse
- ‘product dumping’- exporting at lower price in foreign markets than price charged in domestic
- stunted growth/ decline in local and emerging industries due to competition
- increase health flows of viruses e.g. COVID
- protectionism + tariffs
- de-skilling due to technology replacing manpower, traditional skills are lost
- exploitive + labour intensive industries- lowering labour costs etc = maximise profits
- less opportunities in poor countries and differential access to markets so wealthier countries benefit more
- trade deficits
- job loss in certain sectors
- more carbon emissions from production —> impact quality of life
- fluctuations in trade
- over-reliance on TNC can impact economy if it relocates etc
- LIC- labour exploitation etc
- growing gap between rich + poor
- LIC= over-reliant in fluctuating primary goods
