Trade Blocs Flashcards
Define ‘trading blocs’
Freely flowing goods, money and workers over national boundaries, this requires an amendment of national laws and can include countries of different development levels
Define ‘protectionalism’
The method of protecting a country’s domestic industries from foreign competition
Define ‘political-economic alliances’
Countries that cooperate together to gain economic and political benefit e.g. GB and the Commonwealth
Name the six types of trade blocs
- preferential trade area
- free trade area
- customs union
- common market
- economic union
- full integration
What is a preferential trade area?
Lower but not eliminated trade barriers between members
What is a free trade area?
Eliminated internal barriers but maintenance of independent external barriers e.g. NAFTA
What is a customs union
Eliminated internal barriers and agreed common external barriers e.g. EU
What is a common market?
Eliminated internal barriers and adopted common external barriers to allow a free movement of resources amongst its members e.g. Mercosur
What is an economic union?
Eliminated internal barriers and adopted common barriers to allow free movement of resources and a uniform set of economic policies e.g. EU
Describe full integration
USA
Name two advantages of trade blocs
- economies of scale
- competitive advantage
Describe economies of scale
A larger size of trade blocs have a larger market population and therefore more custom and more produce and generally raw materials sold and bought in bulk to reduce costs
Describe the comparative advantage
Easier to trade different goods and services
Countries can sell what they are good at making and buy what they need more easily
Increases overall trade
The UK’s population is (1) and the EU’s is (2) so the UK’s companies have benefitted by (3) and sources their goods from within (4) countries
1 - 65m
2 - 508m
3 - expanding into the EU’s countries
4 - 28 countries
National firms can merge to form (1) but need larger (2) to generate (3) e.g. Vodafone merger with the (4) company Mannesmann to become the world’s largest telecommunications company in (5)
1 - TNCs 2 - domestic markets 3 - economies of scale 4 - German 2 - 2000
Trade blocs can also protect from foreign competitors and provide (1) e.g. in 2007, the EU blocked (2) of Chinese made clothes from entering the UK because it had already filled the (3)
1 - political stability
2 - £50m
3 - annual quota
Name three disadvantages of trade bloc memberships
1 - loss of sovereignty
2 - interdependence so impacts all members
3 - compromise and concession
Describe loss of sovereignty as a disadvantage of trading blocs
EU deals with trade and human rights, consumer protection and greenhouse gas emissions etc. Which can undermine national authority
Describe interdependence as a disadvantage of rafting blocs
A disruption of trade within a bloc consequences all nation’s economies e.g. banking sector of all eurozone countries being challenged
Describe compromise and concession as a disadvantage of trading blocs
Members must allow foreign firms to gain domestic market share which may be at the expense of local companies
What does NAFTA stand for?
North American Free Trade Agreement
NAFTA was established in (1) to eliminated (2) between (3)
1994
Tariffs and trade barriers
USA, Canada and Mexico
Give three advantages of NAFTA on the USA
- US firms can set up factories in Mexico for cheaper labour costs
- Profits made in Mexico return to US shareholders
- No strict environment laws which increases profit margin
Give two disadvantages of NAFTA on the USA
- Loss of American manufacturing jobs leading to higher unemployment
- Full access to Mexican trucks in the USA but not limited by driving times meaning more accidents but also illegal immigration
