Th4.1: Trading Blocs - Disadvantages

Question 1

What are the first five disadvantages of trading blocs?

Answer 1

distort world trade
reduction in competition
loss of resources
retaliation
distract governments

Question 2

What are the final four disadvantages of trading blocs?

Answer 2

distribute the gains from trade unequally
limited range of goods
national sovereignty
‘second best’ solutions

Question 3

Distort world trade

Answer 3

countries are no longer able to benefit from trade with countries in other blocs and the blocs are likely to distort world trade, reducing the benefits of specialisation. inefficient producers within the bloc are protected from efficient producers outside the bloc, called trade diversion

Question 4

Reduction in competition

Answer 4

there may be a reduction in competition as inefficient firms are driven out of the business and the market become oligopolistic

Question 5

Loss of resources

Answer 5

one dynamic loss may be the loss of resources, as the most successful countries will attract capital and labour (both free in common market) and so this heightens regional inequalities as the richer countries experience faster rates of growth.

Question 6

Retaliation

Answer 6

there could also be retaliation as the creation of one regional trading bloc, will lead to the creation of others and this can lead to trade disputes

Question 7

Distract governments

Answer 7

creating and maintaining trading blocs can distract governments from the gains of signing full free trade agreements. bilateral agreements can bring very little gain to the two countries but take up significant government resources

Question 8

Distribute the gains from trade unequally

Answer 8

they distribute the gains from trade unequally, with developed countries often gaining most and developing countries being impacted little

Question 9

Limited range of goods

Answer 9

they may be weak if they cover a limited range of goods

Question 10

National sovereignty

Answer 10

they lessen national sovereignty

Question 11

‘Second best’ solutions

Answer 11

trading blocs can be seen as ‘second best’ solutions in a world with protectionism. economic efficiency would be maximised if there were no barriers to trade