Trading Blocs (4.1.5) Flashcards
What is a Trading Bloc?
A group of countries that form an agreement to reduce or eliminate protectionist measures between each other
What does joining a trading bloc mean?
Key method of increasing trade liberlisation and leads to trade creation
What is Trade creation?
Means that businesses are able to enter new markets which can lead to an increase in sales volume and sales revenue
What are the 3 largest trading blocs?
The European Union (EU), The Association of Southeast Asian Nations (ASEAN) and USMCA (United States, Mexico and Canada, formerly known as NAFTA)
What are some characteristics of these trading blocs?
-Free movement of goods and people
-No trade restrictions between the countries
-Relocation of production process
What is the impact of Trading Blocs on businesses?
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.
What are the disadvanatages of trading blocs?
-Increased competition
-Pressure to increase efficiency/improve
-To create a single market, new rules and regulations may be agreed, including minimum wage
What are the advantages of trading blocs?
-Increased business due to tariffs
-Economies of scale for businesses (As volume of trade increases- Lower costs-more competitive)
-Labour easier to recruit (access to skills)
What are the benefits for businesses inside the trading blocs?
-Wider Markets
-External Tariff walls
-Infrastructure support
-Free Movement of Labour
How is Access to more markets a benefit for businesses inside the bloc?
Businesses are able to sell to more customers due to free movement of goods
What is an external tariff wall?
A tax applied to imported goods by a group of countries that have formed a trade agreement
How is external tariff walls a benefit for businesses inside the bloc?
This protects businesses within the trading bloc from competition from businesses outside of the trading bloc
How is infrastructure support a benefit for businesses inside the bloc?
Businesses may gain additional support from the government to enable them to maintain their competitiveness against businesses in countries inside the trading bloc
How is free movement of labour a benefit for businesses inside the bloc?
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
What are the drawbacks for businesses inside the trading bloc?
-Increased Competition
-Common rules and regulations
-Retaliation
-inefficiency
How is Increased competition a drawback for businesses inside the bloc?
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
What does monopoly power mean?
A large business which dominates a market
How is Common rules and regulations a drawback for businesses inside the bloc?
In order to operate as one market, new rules and regulations may be put in place that all businesses must adhere to
How is Retaliation a drawback for businesses inside the bloc?
External tariffs set against countries outside of the trading bloc may lead to retaliation from these countries
How is Inefficiency a drawback for businesses inside the bloc?
-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
