Trading Blocs

Question 1

Define trading bloc?

Answer 1

A group of countries where trade barriers are reduced or eliminated between member states.

Question 2

What is trade creation?

Answer 2

When there is an increase in the total amount of goods and services traded because of reduced trade restrictions within the trading bloc

Question 3

what is trade diversion?

Answer 3

When a trading bloc reduces imports from non-member countries, enabling business within member countries to increase sales inside the trading bloc.

Question 4

What is a free trade area?

Answer 4

This is where countries agree to trade goods with other members without protectionist barriers. An example of this is NAFTA

Question 5

What is a customs union?

Answer 5

Countries in a custom union have established a common trade policy with the rest of the world. For example they may have a common external tariff.

• They also have free trade between members
• An example of this is the EU

Question 6

What is a common market?

Answer 6

This establishes free trade in goods and services, a common external tariff and allows free movement of capital and labour across borders.

Question 7

What are some facts about the EU?

Answer 7

The EU is a single market
27 European countries
population of 450 million people
combined GDP of $18 trillion
free movements of goods, labour and capital between members.
There is a common external tariff on non-members of the bloc

Question 8

What are some facts about USMCA?

Answer 8

USMCA is a free trade area (FTA – no common external tariffs) USA, Mexico and Canada
population of 500m people
combined GDP of $24 trillion.

Question 9

What are some facts about ASEAN?

Answer 9

ASEAN is a free trade area (FTA)
between 10 south-east Asian countries
population of 650 million people
GDP of $2.5 trillion.

Question 10

What are the benefits of operating in a trading bloc for a business?

Answer 10

• Access to member states without trade restrictions (exports will increase)
• No tariffs on imports from bloc members (lower costs) which will lead to lower prices for consumers
• spreading of risk
• possibilities of economies of scale

Question 11

What are the disadvantages of operating in a trading bloc for a business?

Answer 11

• may face increased competition which could lead to having to compete on price and quality.

Question 12

What are the disadvantages of operating in a trading bloc for a country?

Answer 12

• No protection for domestic industries competing with other trading bloc members
• Higher competition for domestic producers
• Can take a long time to join trading bloc and make new rules

Question 13

What has caused growing interdependence (countries relying on each other) and why might this be a bad thing?

Answer 13

The growth of trade and FDI has made economies increasingly reliant on each other. Both businesses and governments are likely to be affected by adverse events in the economies they trade in.