4.1.3, 4.1.4, 4.1.5 Trade Flashcards
What are some protectionist policies
-tariffs
-quotas
-subsidies
-non tariff barriers - the use of rules and regulations to restrict market access to foreign firms e.g product standards
-controls of FDI and market access to strategic sectors - defence, telecoms and IT, and financial systems
-exchange rate manipulation - e.g China artificially deflating their currency
What are some justifications of protectionism
-protect domestic employment
-improve balance of payments by limiting foreign debt
-protection against dumping (where a country sells in a foreign market below cost of production to remove competition)
-national security (defence and food should be protected in case of conflict)
What are some problems with protectionism
-loss of economic welfare - firms have less foreign competition so may not prioritise lowering costs
- consumes will have less choice and higher prices
-retaliation - when one country imposes controls there is a threat of other countries retaliating leading to less world trade
-conflicts comparative advantage - if countries only produce goods they have comparative advantage in there may be a misallocation of world resources
-depends on the size of the tariff - may not have any effect depending on things like PED
What is trade creation
When a country moves from trading with a high cost producer to a lower cost producer
What is trade diversion
When a country moves from trading with a low cost producer to a higher cost producer
What are some reasons for the changing patterns of trade
-the theory of comparative advantage - it has led to many global supply chains
-emerging economies - globalisation means many countries have been drawn into the global trading system
-more trading blocs and bilateral agreements
-changes in relative exchange rates
Where is the uk for importing and exporting
4th largest
In 2023 what was the uk’s net trade balance
£30 billion deficit
What is a bilateral trade agreement
Rules of trade between two countries
What are trade blocs
Groups of countries that agree to remove trade barriers and operate as a free trade area
What is the role of the World Trade Organisation (WTO)
-monitor free trade agreements
-settle disputes between member countries
-promote trade liberalisation
What are the two main principles of the WTO
Most favoured country principle - if a country reduces tariffs or quotas for one country it must do so for all
National treatment - once imported goods have entered a country, they must be treated equally to domestically produced goods
What are some criticisms of the WTO
Single under-taking - every item is negotiated as an overall package so negotiations are very slow
Lacks democratic accountability - negotiations are between wealthier nations as LEDCs cannot afford a representative
Wealthier countries run it - wealthier countries have protectionist policies whereas LEDCs are expected to follow free trade
Infant industries in LEDCs cannot develop
What is a free trade area and an example
No trade barriers between members
NAFTA
What is a customs union and an example
No trade barriers between members and common external tariffs on non-states
MERCOSUR
What is a single market / commons market and an example
No trade barriers
Common external tariffs
Free mobility of labour, goods and services
EU
What is a monetary union and an example
No trade barriers
Common external tariffs
Free mobility of labour, goods and services
Common currency
Eurozone
How do you calculate terms of trade
Index of exports / index of imports x 100
What are terms of trade
The real value of a countries exports in terms of their imports
What can influence a country’s terms of trade
-changes in global prices of raw materials
-changes in the exchange rate
-changes in import tariffs and other trade barriers
