Trading blocs
Trading blocs are partnerships and agreements between nations to allow free trade and the collaboration and integration of economic, political and cultural practices
Protectionism (low)
Protecting small businesses and markets against foreign competition through tarrifs, import quotas, subsidies ect.
Preferential trade areas (lowish)
Certain products from certain countries receive reduced tariff rates.
Tariffs - are taxes charged on the import of goods from foreign countries
Customs unions (lowish)
Involve an agreed set of tariffs against non-members but free trade exists between members.
Free trade areas (mid)
Where there is a removal of trade barriers between countries.
Common markets (mid/high)
As well as free trade between members here is also free movement of labor and capital.
Single markets (high)
As well as free trade, common laws are adopted to harmonise standards and tax.
Economic unions (high)
Aim for integration of economic, political and cultural factors. Includes the adoption of a common currency such as the euro.
Import quotas - a government imposed trade restriction that limits the number or monetary value of goods that a country can import or export in a given period.
Subsidies - is an amount of money provided to firms to help reduce production costs so that lower prices can be issued resulting in greater consumption.
Global trading blocs
NAFTA
North American trade agreement
A free trade zone including trade, investment, labor, financial dealing and environmetal legislation.
Member countries negotiate separate deals with outside members.
ASEAN
Association of Southeast Asian Nations.
A free trade agreement between politically, economically and culturally diverse countries.
EU
European Union.
A single market with the free movement of people, goods and services.
The Eu also adopts common laws around employment and consumer legislation.
Most member states are also part of the monetary union - the Euro.
Benefits of trading blocs
Opportunities to expand into new markets.
Allows businesses to benefit from the comparative advantage - cheaper and better quality products.
Makes it easier and cheaper to source labor if free movement is permitted.
Tarrif elimination leads to lower prices for consumers in member countries.
Free-flow also increases which means access to a wider variety of goods.
Companies can increase their sales to other member countries without having to worry about protection.
The broader market means that companies can take advantage of the economies of scale.
Specialisation is encouraged as increased trade allows for increased specialisation where countries can develop the most efficient industries.
Economic expansion in one country increases demand in other members .
Decrease monopoly power as competition increases: goods and services flow freely and create better choices for consumers. It increases competition in the market and forces firms to increase innovation and efficiency to stay competitive.
Positive effect on knowledge and technology transfer: In a common market or economic union, capital and professional labourers move freely between members, allowing for a positive effect on knowledge and technology.
Monopoly - When one company and its product dominate the whole industry hereby there is little to no competition and consumers must purchase that specific good or service from that one company.
Key terms