National Governments and Trade Blocs EQ1 Flashcards
What is Free Trade?
Free trade is the unrestricted exchange of goods and services between countries without tariffs, quotas, or trade barriers
What is free trade liberalisation?
a country removing forms of protectionism to allow free movement of trade
What is foreign direct investment (FDI)?
-Foreign Direct Investment (FDI) is when a business or investor from one country invests in a company, project, or assets in another country, often by opening factories, buying businesses, or developing infrastructure.
What is trickle down?
Trickle-down is the idea that wealth and benefits given to businesses or the rich will eventually reach the wider population through job creation, wage increases, and economic growth
What is Privatisation?
the transfer of a business, industry, or service from public to private ownership and control
What are special economic zones (SEZs)?
-An industrial area, often near a coastline, where favourable conditions are created to attract foreign TNCs.
-These conditions include low tax rates and exemption from tariffs and export duties.
What is outsourcing?
TNCs contract another company to produce the goods and services they need rather than do it themselves. This can result in the growth of complex supply chains.
What are the different types of FDI?(4)
1)offshoring- some TNCs build their own new production facilities in “off-shore” low wage economies e.g. US owned fender opening plant in Mexico
2)Foreign Mergers-Two firms in different countries join forces to create a single entity e.g. Royal Dutch shell has HQ in Uk and Netherlands
3)Foreign Acquisitions- When a TNC launches a take over of a company in another country e.g. Cadbury was taken over by US Kraft
4)Transfer Pricing- Some TNCs have channeled profits through a subsidiary company in a low tax country e.g. Ireland. The OECD is trying to limit this practice
What are the advantages of FDI?
•Creates Jobs & Economic Growth – FDI brings new businesses and industries, providing employment and boosting the economy.
•Improves Infrastructure & Technology – Foreign companies invest in better roads, factories, and digital systems, modernising the host country.
•Strengthens Global Trade Links – Encourages international business connections, increasing exports and market expansion.
How can national governments promote globalisation?
-They can join trade blocs
They can privatise state-owned companies (e.g., British Gas and British Rail) which boosts globalisation by attracting foreign investment, increasing international competition, and encouraging higher service standards as they compete in global markets
-they can encourage business start ups e.g. UK government gave tax breaks and infrastructure support to Nissan, helping them build a plant in Sunderland, creating more jobs and attracting FDI
-they can create special economic zones
What are the key players in terms of national government in promoting free trade blocs?
-The EU
-The ASEAN
What is the EU?
A political and economic union of 27 member states that are located primarily in Europe
What is the ASEAN?
A regional intergovernmental organisation compromising ten South East Asian countries
What are the advantages of a trade bloc membership?
1)The EU promotes free trade liber between member states(allows businesses to trade without tariffs), reducing costs and making products more competitive. E.g., UK supermarkets like Tesco could import fresh produce from Spain and France at lower prices, keeping costs down for both businesses and consumers, giving them access to a larger variety of goods and increasing profitability
2) Protection & Political Stability: Trade blocs protect domestic industries by limiting imports (e.g., the EU blocking £50 million of Chinese-made clothes in 2007), this reduced reliance on foreign imports boosting local economies and protecting them from foreign competition
What are the disadvantages of a trade bloc membership?
1) Over-reliance on trade blocs for market access can make nations economically vulnerable, as major changes like Brexit can disrupt trade flows, increase costs, and create uncertainty for businesses.
2) Trade blocs remove trade barriers for member countries but impose tariffs on non-members, making it harder for developing nations to access major markets. E.g., African farmers struggle to sell their goods in the EU because of high import tariffs and subsidies for EU farmers, making European products cheaper and reducing competition from non-member countries
What are the advantages of being part of the ASEAN?
-Being part of ASEAN makes countries more attractive to foreign investors, as companies gain easier access to multiple markets e.g. Many global businesses set up headquarters in Singapore and Malaysia to access ASEAN markets efficiently
-ASEAN reduces political tensions between member countries through diplomatic cooperation and economic ties e.g. they work together on security, climate change and disaster response promoting peace
What are the disadvantages of the ASEAN?
-ASEAN includes both high-income nations (Singapore, Malaysia) and low-income nations (Myanmar, Laos, Cambodia), leading to uneven development e.g. Singapore benefits more from ASEAN trade, while poorer countries struggle to compete due to weaker infrastructure and lower industrial capacity
-ASEAN economies rely heavily on investment from external powers like China, Japan, and the USA, which can make them vulnerable to global economic changes e.g. a slowdown in China’s economy directly impacts exports in the ASEAN reducing growth in Vietnam and Thailand
How does privatisation influence globalisation?
Privatisation can encourage investment and improve efficiency, promoting globalisation.
-In the UK, industries like railways were privatized, allowing private companies to run them, attracting foreign investment.
-This increases competition and efficiency, while also making the economy more open to global markets.
-However, privatization can sometimes reduce the quality of services, as seen with issues in the UK’s railway services, showing that the impact is not always positive.
How does encouraging business start ups influence globalisation?
-Governments can encourage globalisation by offering incentives to attract businesses.
-The UK government gave tax breaks and infrastructure support to Nissan, helping them build a plant in Sunderland.
-This lowers costs for businesses, allowing them to compete in global markets and attract international investment.
-Such incentives foster global connections and economic growth, showing how government support can drive globalization.
