4.1.5 Trading Blocs Flashcards
What is a trading bloc?
A trading bloc is a group of countries that sign up to free trade between them, protected by a tariff wall against imports from outside.
What are features of a free trade area?
- no tarrifs between members
- no external tariff
- can negotiate own trade deals
What are features of a customs union?
- no tariffs
- no border checks
- common external tariff
- trade deals for whole customs union
What are features of a single market?
- no tariffs
- common external tariffs
- freedom of movement goods and people
- common rules and regulations
What do trade blocs work towards?
- harmonisation of laws
- free movement of labour
What is dumping?
Dumping describes the practice of selling off excess products in a foreign market at an exceptionally low price, which destroys sales for local producers
Why would countries want to join a trading bloc?
- Harmonisation of laws which allows countries to benefit from economies of scale
- Countries working together have greater power globally to stand up to non-member practices e.g. dumping
- Competing in a larger home market incentivises international trading and efficiency
What are some examples of the world’s trading blocs?
EU ASEAN MERCOSUR NAFTA EAC
EU
- when did it start?
- who are the main members?
- what is the total GDP?
- what are some distinctive features?
- what is the population?
- 1958
- Germany, France and UK (28 currently, 27 after Brexit)
- $16,000 billion
- have introduced a singular currency (euro)
- 515 million (445 million post-Brexit)
ASEAN
- when did it start?
- who are the main members?
- what is the total GDP?
- what is the population?
- 1967
- Indonesia, Thailand, Vietnam (10 in total)
- $2,600 billion
- 625 million
NAFTA
- when did it start?
- who are the main members?
- what is the total GDP?
- what are some distinctive features?
- what is the population?
- 1994
- USA, Canada, Uruguay (3 in total)
- $21,000 billion
- large labour force, low-cost manufacturing
- 480 million
What are the advantages of trading blocs?
+ free movement of goods between members gives the potential to create a large single market ie. EU
+ External tariff walls insulate the business from competition from another part of the world
+ As trade grows between neighbours, it becomes economic governments to provide appropriate infrastructure e.g global trade therefore, global infrastructure
What are the drawbacks of trading blocs?
- competition increases due to freer trade, so those with monopoly power may find it ‘competed away’
- to create a single market, new rules and regulations may be agreed, including wage rates
- the availability of easily accessed neighbouring markets may reduce enterprise in relation to distant but dynamic ones such as China
- within a geographically proximate bloc, there may be a common factors that together becomes problems e.g. low commodity prices
What is the criteria to join the EU?
1) Democratic society that values human rights
2) A free market economy that is stable and able to compare in the single-market efficiency
3) Agree or by-in to the aims and having the capacity to adhere to implement laws
What are the benefits of BREXIT?
- membership fees
- establish British sovereignty
- helps solve immigration issues
- stop bureaucracy and red tape
- establish own regulations and rules
- encourage domestic spending
What are the drawbacks of BREXIT?
- less international trade
- less free movement of labour or capital
- border issues e.g. Northern Ireland
- create labour shortages
- products have to adhere to a standard
- uncertainty
- depreciation of sterling
What is the purpose of the European monetary union?
- share common currency
- conditions countries have to fulfil to join
- ECB controls policies that are shared
- removes exchange rates
- keep inflation low
What is the ECB?
European central bank that keeps inflation 2%
What are the government policies
1) Fiscal policy
2) Monetary policy
What are fiscal policies?
taxation and government spending to influence aggregate demand
What type of fiscal policies are used during a boom?
Contractionary policies that increase tax and reduce government spending helping reduce inflation.
What type of fiscal policies are used during a recession?
Expansionary policies that reduce taxes, increase government spending which help grows customer spending
What are the types of fiscal policies?
Contractionary and expansionary policies
What are monetary policies?
These are policies that influence the supply of money in circulation and interest rates.
What is aggregate demand?
The demand for final goods and services in an economy.
What happens to interest rates during a boom?
they increase and consequently spending decreases and saving increases
What is quantitative easing?
A form of monetary policy, when a government prints more money
What is quantitative easing bad?
- devalue the currency
- poor long-term
What is the convergence criteria?
Things required to enter the EU
- inflation rates
- exchange rate stability
- public debt
- price stability
- natural budget deficit
What are the positives of the EMU?
- Adopts a common currency allowing ease of business
- no exchange rates
- stability
- price transparency
What are the negatives of the EMU?
- Determine policies across 28 countries
- Loss of sovereignty
- admin costs
How many countries use the euro?
19
What are the forms of monetary policies?
quantitative easing
limit lending between banks
