Trading blocs Flashcards
What are trading blocs?
Trade blocs are usually groups of countries in specific regions that manage and promote trade activities.
Trade blocs lead to trade liberalisation (the freeing of trade from protectionist measures) and trade creation between members, since they are treated favourably in comparison to non-members.
What are the main benefits of trading blocs?
Foreign Direct Investment: an increase in foreign direct investment results from trade blocs and benefits the economies of participating nations
Economies of Scale: larger markets created via trading blocs permit economies of scale
Competition: trading blocs bring businesses in numerous countries closer together, resulting in greater competition
Greater trade: trading blocs seek to reduce protectionist measures such as tariffs and quota tariffs, which should stimulate greater demand within the trading bloc
Market efficiency: the combination of greater competition, FDI, economies of scale and greater trade should result in a more efficient market
What are some examples of trading blocs?
European Union (EU) – a customs union, a single market and now with a single currency
European Free Trade Area (EFTA)
North American Free Trade Agreement (NAFTA) between the USA, Canada and Mexico
Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA)
What are the four freedoms of the EU?
The EU single market is built upon four key freedoms:
Free Trade in Goods: Businesses can sell their products anywhere in the EU’s member states and consumers can buy where they want with no penalty
Mobility of Labour: Citizens of EU member states can live study and work in any other country. The aim is to improve the mobility of labour.
Free Movement of Capital: Currencies and capital can flow freely between member states and EU citizens can use financial services in any member state.
Free Trade in Services: Professional services such as pensions, architecture, telecoms and advertising can be offered in any member state
What are the possible short-term impacts for UK economy and business from Brexit?
Impacts:
Weaker exchange rate (depreciation) = Sterling fell sharply against US dollar and Euro following vote
Higher prices for imports
Over 50% of UK imports come from EU
Lower economic growth?
Expected to take possibly two years to negotiate EU exit terms Initial fall in business and consumer confidence
Weak demand in supply chains suggest businesses are being cautious
Housing market
Fall in confidence may dent mortgage demand
Possibility of decline in overseas demand although weaker pound increases real purchasing power of US dollars in UK property market
Unemployment
Unemployment tends to be a lagging indicator of the economic cycle – a month after Brexit, the UK unemployment rate fell below 5%
