Trading Blocs (4.1.5)

Question 1

What is a Trading Bloc?

Answer 1

A group of countries that form an agreement to reduce or eliminate protectionist measures between each other

Question 2

What does joining a trading bloc mean?

Answer 2

Key method of increasing trade liberlisation and leads to trade creation

Question 3

What is Trade creation?

Answer 3

Means that businesses are able to enter new markets which can lead to an increase in sales volume and sales revenue

Question 4

What are the 3 largest trading blocs?

Answer 4

The European Union (EU), The Association of Southeast Asian Nations (ASEAN) and USMCA (United States, Mexico and Canada, formerly known as NAFTA)

Question 5

What are some characteristics of these trading blocs?

Answer 5

-Free movement of goods and people
-No trade restrictions between the countries
-Relocation of production process

Question 6

What is the impact of Trading Blocs on businesses?

Answer 6

Businesses outside the trading blocs will face higher costs from protectionist measures such as tariffs and trying to meet legal requirements inside the trading bloc which will make them less competitive when trying to sell goods to member countries within the bloc. Being outside the bloc is likely to decrease their sales volume to countries within the bloc.

Question 7

What are the benefits for businesses inside the trading blocs?

Answer 7

-Wider Markets
-External Tariff walls
-Infrastructure support
-Free Movement of Labour

Question 8

How is Access to more markets a benefit for businesses inside the bloc?

Answer 8

Businesses are able to sell to more customers due to free movement of goods

Question 9

What is an external tariff wall?

Answer 9

A tax applied to imported goods by a group of countries that have formed a trade agreement

Question 10

How is external tariff walls a benefit for businesses inside the bloc?

Answer 10

This protects businesses within the trading bloc from competition from businesses outside of the trading bloc

Question 11

How is infrastructure support a benefit for businesses inside the bloc?

Answer 11

Businesses may gain additional support from the government to enable them to maintain their competitiveness against businesses in countries inside the trading bloc

Question 12

How is free movement of labour a benefit for businesses inside the bloc?

Answer 12

Free movement of labour allows the business to source workers from a wider pool. A higher supply of labour may push wages lower, leading to reduced costs for business

Question 13

What are the drawbacks for businesses inside the trading bloc?

Answer 13

-Increased Competition
-Common rules and regulations
-Retaliation
-inefficiency

Question 14

How is Increased competition a drawback for businesses inside the bloc?

Answer 14

Increased competition can be an issue more for smaller businesses as they have fewer resources available with which to compete unlike businesses with monopoly power who can increase their monopoly by eliminating competitors in other countries within the bloc

Question 15

What does monopoly power mean?

Answer 15

A large business which dominates a market

Question 16

How is Common rules and regulations a drawback for businesses inside the bloc?

Answer 16

In order to operate as one market, new rules and regulations may be put in place that all businesses must adhere to

Question 17

How is Retaliation a drawback for businesses inside the bloc?

Answer 17

External tariffs set against countries outside of the trading bloc may lead to retaliation from these countries

Question 18

How is Inefficiency a drawback for businesses inside the bloc?

Answer 18

-Although there is increased competition between countries within the bloc, there is less competition from businesses in countries outside of the bloc which may reduce the incentive of businesses to be more efficient
-Trading blocs also lead to trade diversion, which means trade is taken away from efficient producers who operate outside the trade bloc and replaced by trade within the bloc