International Trade

• Theory behind comparative advantage suggests that countries should specialise in providing goods and services that they excel at producing - they then trade these for the things they are not good at producing.
• Multilateral trade agreement = a trade agreement negotiated between more than two countries or groups of countries at the same time, usually facilitated by the WTO
• Barrier to trade = a government imposed restraint on the flow of international goods or services
• Tariff = A tax on imports
• Import Licence = A document issued by a national government authorising the importation of certain goods from a specific source
• Import Quotas = Quotas set a physical limit restricting the quantity of a particular commodity that can be imported into the country within a specific period of time
• Subsidies = These are grants or allowances usually awarded to domestic producers to reduce their costs and make them more competitive against imported goods
• Sanctions = These are restrictions on exports implemented for political reasons by countries and international organisations to maintain international peace and security
• Embargoes = The partial or complete prohibition of commerce and trade with a particular country. They are usually put into practice for political rather than commercial reason
• Regulatory or Technical Restrictions = These are restrictions placed on imports based on obstacles such as the quality standards of goods or how they are produced. The EU attempts to put restrictions on the import of goods produced using child labour
• Free market ideas saw a push to remove existing barriers to international trade
• With an increase in mobility of factors of production, there is an increase in regional trade agreements (RTAs)
• In 2018, the value of world trade in goods was US $19.48 trillion, only US $0.50 trillion more than its value in 2013 - The total value of services traded in 2018 US $5.8 trillion
• Factors Driving Current Patterns of Global Trade

  • Comparative Advantage = countries specialise in producing and exporting good that they can produce at lower costs
  • Proximity = Countries are more likely to trade with their neighbors, because this reduces transport costs
  • Agglomeration = Industries tend to cluster in geographical areas
  • Market Size and Strength = exporters are drawn to larger, more affluent and growing markets
• Trade is still dominated by a few large economic blocs.

  • Intra-regional trade is particularly strong with Europe and within the Asia-Pacific region
  • In Latin America and Sub-Saharan Africa, there is less intra-regional trade, as most trade involves imports and exports
  • Latin America has the strongest trade flows with North America, it has an overall trade surplus with North America and Europe but a deficit with the Asia-Pacific region
• Backlash against trade liberation seen in the USA and Europe causes them to pull back from integration, this creates stronger links between Asia-Pacific region, Africa and Latin America
• In 2019, FDI inflows totaled US $1.39 trillion, which as the fourth consecutive annual decline. FDI to developed economies fell to US $640 billion, whereas flows to developing economies remained stable at around $750 billion
• UN Conference on Trade and Development's Findings on FDI Trends

  • Developing countries receive almost twice as much FDI as they initate
  • FDI from North America has slumped
  • The Asia-Pacific region accounts for 40% of FDI inflows
  • 8 of the top 20 recipients of FDI were developing economies
  • The largest FDI investors were Japan, China and France
• Attractions Pulling in FDI

  • Manufacturing industries = e.g. foreign motor companies investing in the USA or UK or offshoring and outsourcing investment in China
  • Natural resource development = investment from mining corporations e.g. in Brazil and Congo
  • Financial business services = attract investment in Singapore and Hong Kong
  • Large and accessible consumer markets = e.g. EU single market of 500 million
  • Lower business taxes = attract investment to Ireland and Cyprus which have low taxes
• USA has traditionally a 'protectionist' economy. In the eight years of Obama's predicency, free trade were being negotiated with Asia-Pacific countries in the Trans-Pacific Partnership (TPP) and with the EU in the Transatlantic Trade and Investment Partnership (TTIP)
• Obama's strategies of 'opening up' to multilateral trade have been reversed, and as a result:

  • Trump withdrew from the TTP negotiations, the Pacific countries have stated negotiations without the US
  • TTIP negotiations collapsed in 2016, US attempted to resurrect a similar deal in 2018, but US demands for access were to much for many EU countries
  • NAFTA free trade agrement with Canada was renegotiated to USMCA
  • Trump aimed to pursue bilateral trade deals with individual countries - US has twenty seperate free trade agreements, including some with countries in the TPP group
• EU is protectionist in its own way. 27 members trade freely with each other, but there is an external tariff barrier for countries outside the Union. This also means that the EU negotiates trade deals as a bloc representing all member states.
• EU and trade

  • 65% of the trade in the EU is intra-regional, this high level of trade fosters greater integration and interdependence
  • EU has negotiated trade deals bilaterally with countries in different parts of the world, they are not all reciprocal free trade agreements but can offer reduced tariffs and easing of barriers
  • One of most recent deals was Canada-EU deal approved by EU Parliament in 2017
  • In 2019, EU agreed a trade deal with Mercosur, the South American trading bloc
• Anti-Free Trade Movements Within the EU

  • Farmers in countries such as Belgium, France and the Netherlands are concerned that the imports of cheap beef and sugar will lead to unfair competition
  • Environmental groups suggest that Brazillian and Argentinian cattle are injected with chemicals and that Mercosur countries do not meet EU standards in working conditions, food production or environmental protection
• The loss of the UK from the EU is potentially detrimental as the UK was a major contributor to EU funds, it attracted investment in manufacturing and provided a sizeable market. During the 2020 Brexit transition period, the UK negotiated a new free trade deal with the EU
• China

  • Economic growth rate in the last 30 years has been based on the expansion of manufacturing of consumer goods
  • China has emerged as the world's major trading power, responsible for nearly 30% of all global exports and 15% of all global imports
  • Clear pattern of importing mainly raw material from Latin America and Sub-Saharan Africa and exporting processed metals and manufactured electronic consumer goods
  • The export of cheaply produced, state-subsidised steel onto the world marker has triggered a trade war with the USA which has escalated to include high tariffs
• India has had rapid industrial growth over the past 25 years, though its emergence as a major economic and trading power has had less impact than China. Arguably, India has a more diverse economy and is more globally intergrated than China.
• The success of the Green Revolution in India, in terms of staple food production, has alleviated the concerns over famine and food security in India. However, the revolution caused agricultural labourers to be laid off and many migrated to towns and cities in search of work.
• India's trade with emerging markets in Asia and the Middle East has expanded, giving India the following trade pattern in 2018

  • Top exports are refine petroleum, chemicals, gold and diamond, rice, cars and textiles
  • Top imports are crude oil, coal briquettes and gas
  • Main export destinations as the EU, the USA, the UAE and China
  • Imports come mainly from China, The USA, Saudi Arabia and the UAE
  • India's imports have expanded faster than exports, so the economy is vulnerable. In 2018, there was a deficit of US $166 billion
• Latin America has two distinct trading blocs - Mercosur and the Pacific Alliance
• Mercosur - Formed in 1991, has the larger GDP (US $3.4 trillion) and comprises Brazil, Argentina, Uraguay and Paraguay.

  • Single market and customs union and tries to emulate the EU. Called the 'Common Market of the South' and allows the free movement of labour between member states
  • Most exported products are raw materials, energy, mineral and food resources, leaving Mercosur vulnerable to fluctuating global trade prices
  • Mercosur views EU and North America as main markets
• Pacific Alliance (PA) - Formed in 2011, comprises Chile, Peru, Colmobia and Mexico, combined GDP of $2.2 trillion

  • Has been more open to making bilateral trade agreements with other nations
  • Sees the Asia-Pacific as its main market
  • Some PA countries, such as Peru and Colombia, are experiencing faster growth both in terms of economies and volume of trade
• Since 2017, it is more likely that the PA and Mercosur will merge to form one free trade areas, governed by the Union of South American Nations (UNASUR). Would increase intra-regional trade as well as giving all LAtin American countries greater trading power on a global scale.
• Trading Relationships in Sub-Saharan Africa

  • Minimal intra-regional trade and Africa's main exports remain primary resources and commodities such as minerals, energy and food
  • Lack of skills, poor transport and energy infrastructure and widespread corruption have discouraged investment into industrial development in Africa
  • Main trading partner has traditionally been Europe, but has changed to China
  • Africa is a larger, poorer and more divided continent than South America. There are more language, ethnic and cultural divisions
• Two factors changing trading relationships for Africa

  • China's investment
  • African Continent Free Trade Area (AfCFTA)
• China's Investment in Africa

  • Chinese investment in developing infrastructure has been for China's own benefit
  • Has also increased the connectivity and integration of different African nations
• The African Continent Free Trade Area (AfCFTA)

  • Africa has 5 main regional trading groups, but within these there is linguistic and cultural divisions
  • In 2018, these five groups agreed to work together to create AfCFTA, worl's largest free trade area with a population of 1.3 billion
  • 54/55 African nations have now signed
• Trade Implications of AfCFTA

  • Increases intra-regional trade, which is historically low at 16%
  • Gives African nations more voice and leverage in global trade
  • As a result of existing fragmentation and different stages of development, trade liberalisation has the potential to disadvantage the poor
  • The African Union needs to ensure that prosperity is shared by creating supportive policies, eliminating monopolies and other non-competitive behaviour, such as state subsidies
• Fair Trade = A social movement whose goal is to help producers in LDEs achieve better trading conditions. Movement mainly focuses on agricultural-based products including coffee, tea, cocoa, sugar, bananas, cotton and chcolate
• Fair Trade supporters argue that those producing commodities do not get an equitable deal from the organisations they supply their produce to. Buyers such as TNCS can force down the prices because suppliers have little market influence and are extremely reliant on the income from their goods