GG - International Trade

Question 1

What is international trade?

Answer 1

The importing and exporting of goods and services between countries across the world

Question 2

What is the theory of comparative advantage?

Answer 2

Countries should specialise in providing the goods and services they excel at producing and the. Trade these for things that they are not good at producing e.g the Uk importing bananas
In theory, this should increase production across the world in each country. The foreign producer is able to sell more and make more profit

Question 3

Why for much of the 20th century has trade remained limited?

Answer 3

Regulations
Protectionism
High transportation costs

Question 4

What is a barrier to trade?

Answer 4

A government-imposed restraint to the flow of international goods or services
The most common barrier is a tariff which is a tax on imports

Question 5

What is protectionism in trade?

Answer 5

Where some countries limit trade using tariffs and non-tariff barriers to shield their own industries from foreign competition

Question 6

What is free trade?

Answer 6

When international trade is left to its natural course. involves removing barriers to trade

Question 7

What is an import license? (barrier to trade)

Answer 7

Licenses issued by national government authorising importation of goods from a specific source

Question 8

What is an import quota? (Barrier to trade)

Answer 8

A set physical limit on the quantity of goods that can be transported into the country

Question 9

What are subsidies? (Barriers to trade)

Answer 9

Grants of allowances awarded to domestic producers (sometimes by governments) to reduce their costs and make them more competitive against imported goods

Question 10

What are voluntary export restraints? (Barriers to trade)

Answer 10

Diplomatic strategy offered by the exporting country to appease the importing country and stop it from imposing trade barriers

Question 11

What are embargoes? (Barriers to trade)

Answer 11

Partial or complete stops to commerce and trade with a particular country usually for political reasons

Question 12

What are trade restrictions? (barriers to trade)

Answer 12

Technical or regulatory obstacles to the quality standards of goods being imported and how they are produced
E.g the EU tries to put restrictions on goods imported using child labour

Question 13

Describe the World trade organisation’s (WTO) role in international trade

Answer 13

Set up to increase trade between countries and help resolve trade disputes between member countries

Has rules about how member countries should trade with each other
- Promote free trade (removing barriers)
- Countries should act predictably in trade (not quickly raising tariffs on particular products)
- Fair competition between countries
- Can’t give special trading access to one specific country when not given to the rest of the world (exemptions for trade blocs)

Question 14

What is economies of scale?

Answer 14

Producing a narrower range of goods and services means that a country can produce in higher volumes and so at a cheaper cost per unit

Question 15

What is over-specialisation?

Answer 15

If demand falls or a product can be produced much more cheaply overseas, production needs to shift. It is harder for specialised industries to diversify

Question 16

What are the advantages and disadvantages of international trade?

Answer 16

+ Comparative advantage
+ Economies of scale
+ Increased employment (due to more production)
+ Purchasing power

• Over-specialisation
• Decline of local / emerging industries
• Protectionism and tariffs
• Exploitative industries (working conditions compromised to maximise profits)

Question 17

What is purchasing power?

Answer 17

Increased trade means increased competition for selling a product which means that companies lower their prices, allowing consumers to get more for their money

Question 18

Give a real life example of comparative advantage

Answer 18

Umbrellas are a global product - 70% of which are made in China
the centre of this production is Songxia, described as the umbrella capital of the world
Half a billion umbrellas are made there annually

+ Specialisation
+ Economies of scale
+ Government support (tax incentives for producers etc)

Question 19

What is the trend in the VOLUME of trade?

Answer 19

The volume of trade has increased dramatically since the 1980s
This is despite short term fluctuations such as COVID and the war in Ukraine leading to inflation - but trade is still increasing
As a % of world GDP, trade has increased from 40% in 1990 to 60% in 2014

Question 20

What is the trend of trade in HICS / DEVELOPED COUNTRIES?

Answer 20

HICs remain the largest global traders e.g the G7 countries including the USA, UK, Japan etc account for 50% of world trade
Most trade originating in developed countries is with other developed countries due to the numbers of affluent consumers and markets there

Question 21

What is the trend of trade in NEES?

Answer 21

NEEs are challenging the dominance of trade in HICs as their share of international trade is increasing
China is now the world’s largest exporter
E.g the BRIC group (Brazil, Russia, India and China) as well as the MINT group (Mexico, Indonesia, Nigeria and Turkey)

Question 22

What is the trend of trade in DEVELOPING COUNTRIES / LICS?

Answer 22

Increase in world trade during the last decade largely driven by the rise of race between developing countries
Trade flows from south-to-south (where the majority of LICs are located) represent over half of the trade of developing country regions

Question 23

How have former communist countries helped international trade?

Answer 23

The collapse of communism has led to the opening up of many former communist countries so their share in world trade is increasing

Question 24

What is the trend in the volume of foreign direct investment (FDI)?

Answer 24

FDI is an important source of funding for development in all countries, especially LICs
Each year over $1 trillion in FDI flows into countries
But distribution internationally is not equal
FDI now threatened by soaring public debt, war in Ukraine and energy crisis

Question 25

What are the two main groups for the greatest share of FDI?

Answer 25

Countries with natural resource development e.g mining in Mongolia
Countries known for financial business services e.g Singapore

They should also offer stability in the market and a large potential domestic market

Question 26

What is the pattern of FDI in HICS / DEVELOPED COUNTRIES?

Answer 26

Until the 1980s, HICs mainly invested in other HICs but now they invest in NEEs and LICs
In 2020, the major markets of China, India and Brazil were in the top 20 of host economies for FDI inflows

Question 27

What is ethical investment?

Answer 27

When a person, company or group only nests in areas that are considered socially responsible
E.g avoiding companies that cause environmental or humanitarian harm

Question 28

What is the trend in FDI in NEES?

Answer 28

NEEs are beginning to heavily invest in LICs
E.g China invests in African countries and South America due to the minerals and metals found there such as platinum and cobalt in Africa
Can also access the consumer markets there

Question 29

What are terms of trade?

Answer 29

The cost of goods that a country has to export, compared to the price at which they can sell the good they export

Question 30

Why are the terms of trade for LICs less favourable than for HICs?

Answer 30

HICs tend to export primary products from LICs and turn these into manufactured good for the global market
The price for manufactured goods is rising whereas the price for primary products fluctuates
Therefore, LICs need to export an increased number of products to purchase the manufactured goods they require

Question 31

What are trade blocs?

Answer 31

Associations between different governments that promote and manage trade between countries
They remove trade barriers between their members while keeping common barriers to trade to countries that aren’t part of the bloc
E.g the EU

Question 32

What are special economic zones (SEZs)?

Answer 32

Areas that have different trade and investment rules to the rest of the country —> companies investing there may pay lower taxes on land and goods
Help to increase the volume of trade there while keeping barriers to the rest of the country

Question 33

What are the main two trading entities in the world?

Answer 33

The EU
The USA (part of NAFTA - the North American Free Trade Association)

Question 34

What is the World Trade Organisation (WTO)?

Answer 34

Formed in 1995
Aims to cut trade barriers e.g tariffs, quotas, subsidies that stops countries from trading freely so that goods can flow more easily

Question 35

What is the Organisation of Petroleum Exporting Countries (OPEC)?

Answer 35

11 states who supply 40% of the world’s oil supply
Tries to regulate the global oil market to ensure a good fair oil price

Question 36

Why is China investing in many African countries?

Answer 36

To extract a range of primary resources found there e.g copper, gold etc to help industrial expansion in China
To help poorer countries develop healthcare, infrastructure and education

Question 37

Why will Latin America become important to trade in the future?

Answer 37

Currently two main trading blocs in Latin America including the Pacific Alliance
In the future, if they join to form one large union, Latin America would become a major player in global trade

Question 38

Describe the European Union (EU)

Answer 38

The EU is a trade bloc set up founded in the years after WW2 to encourage countries to trade with each other so conflict is less likely

Not only a trade bloc but also consists of legally binding treaties for all 27 of the member countries

Question 39

Institutions of the EU help to promote stability, peace and prosperity. What are some of these institutions?

Answer 39

The European Council - made up of all heads of state / government of the member countries which sets the overall political direction
European Commission - executive body which is responsible for proposing and implementing EU laws and treaties

Question 40

What are the benefits of being a member country of the EU?

Answer 40

• Reduces barriers to trade between member countries (access to a larger consumer market)
• Stable economic conditions due to common currency (euro used by 350 million citizens)
• Free movement of labour means citizens can migrate freely between all member countries

Question 41

What are the drawbacks of being a member country of the EU?

Answer 41

• Bureaucratic instead of democratic - decisions made by non-elected officials
• Common currency between member countries meant that Greece could not become devalued so it became bankrupt and money had to be loaned from the EU to Greece and the country was bailed out

Question 42

Describe the situation between Greece and the EU

Answer 42

With debts of over 4 million euros Greece almost left the EU in 2015
Economic troubles which were amplified by the 2008 economic crisis meant that Greece became bankrupt by 2010
As Greece did not have its own currency (had the euro) it could not devalue and make its exports more competitive / cheaper and imports more expensive. If this had been possible, higher export volumes would have helped economic growth as well as more expensive imports meaning that people would have bought from local businesses instead of internationally (helps increase tax to the government –> positive multiplier effect)
As the country could not do this, loans were taken from the International Monetary Fund and EU and unemployment reached a high of 28% in 2013