GLOBAL INTERDEPENDENCE
13.1 Trade flows and trading patterns
Visible and invisible imports and exports.
trade surplus: positive balance of trade (flow of money into the country – good development)
trade deficit : value of imports > value of exports (flow of money out of the country – bad development)
visible trade : covers physical goods and items that are traded.
· primary products: flow of natural resources (metals and rocks) from African countries to Asian manufacturers
· secondary products: flow of manufactured products from Asian countries to Western ones
invisible trade : covers services (not physical goods) like travel and tourism, or financial/business services.
Global patterns of, and inequalities in, trade flows.
• HICs - import a lot of raw materials, export finished products after adding value and have large ecological footprint
• LICs - may be primary product dependent, often have little trade in comparison to HICs and MICs
• NICs-high-growth economy, growing trade and low manufacturing costs
• Low trade in Africa - primary trade of primary goods in most of Africa (mainly fossil fuels and mining)
• Oil rich nations such as Russia and Saudi have high levels of oil, coal and gas trade
• Asia - largest manufacturer of products
• USA is the largest importer of merchandise - over 12% of the world total, followed by China and Germany.
• Saudi Arabia, UAE, Kuwait, Qatar, Norway - oil exporting countries with relatively small populations
Benefits of trade:
➔ Trade boosts development and reduces poverty by generating growth through increased commercial opportunities
and investment. It enhances competitiveness by helping developing countries reduce cost of input and increase the
value of their products and move up.
➔ Facilitate exports diversification by allowing lyrics to access new markets and new material which open up new
production possibilities.
➔ Encourages innovation by investing in research and development including foreign investment.
➔ Strengthens ties between nations and can create employment opportunities.
advantages disadvantages
HICs - cheap imports of food and raw materials and export - high transport costs
of manufactured goods should allow for a trade surplus - manufacturing causes pollution
- exert pressure on LICs/MICs for cheap goods and - HICs will try to depress primary good prices in LICs
services HICs - protectionist measures and subsidies to protect
- limited mining and deforestation - protect domestic production and tariffs and quotas to limit
environment imports
, TNCs control LIC trade - profits repatriated to HIs -
account for 65% of manufacturing
LICs - raw materials easily sold - provides unskilled work - limited range of exports and expensive imports
leading to trade deficit
- may be able to obtain overseas aid and investment - problems from mining, deforestation and overgrazing
- political instability and corruption
- reliant on one type of export e.g. oil, cocoa, etc
Factors affecting global trade
RESOURCE ENDOWMENT - wealth from raw materials used for economic diversification to produce a more broadly based economy
e.g. South Africa and Brazil.
COMPARATIVE ADVANTAGE - different countries will specialise in producing those goods and services for which each is best
endowed.
LOCATIONAL ADVANTAGE - location closer to markets can reduce transport costs like the manufacturing industry in Canada
benefits from the proximity of the American Market. Countries located along trade routes which gives them advantages in
international trade e.g. tourist destinations in the Mediterranean have high
levels of demand due to their closeness to large populations in colder northern countries such as
Germany and the UK. Ports with a large hinterland and transport communications e.g. Rotterdam. Strategic position on trade
routes e.g. Singapore is located close to shipping routes in South East Asia
INVESTMENT - the greater the level of instability, the lower the rate of private investment and growth. Crime and corruption
represent a substantial risk to investment and increase the cost of doing business in countries where this is a problem.
HISTORICAL FACTORS - historical relationships based on colonial ties affect trade patterns. France, Spain, Portugal, Belgium and
Netherlands maintain ties for their own benefit. Poorer tropical countries have a limited share of world trade due to lack of
historical factors.
Before the independence of former colonies between 1945 and 1970 trade was dominated by a flow of primary goods from
the colonies and manufactured goods from the colonial powers - exploitative relationships that hindered development and
could be a reason why Africa is highly undeveloped.
*TERMS OF TRADE - a number that shows whether a country is accumulating more capital from exports or more capital is leaving
the country than entering into the country.
When more capital is leaving the country than entering into a
country, the TOT will be less than 100%.
When TOT is greater than 100%, the country is accumulating more
capital from exports than it is to spending on imports.
Many poor nations are primary-product dependent, which means
they rely on one or a small number of primary products to obtain
foreign currency through export.
Marxist and populist writers argue that:
- if the expansion of trade volumes brings benefits to MICs
and LICs, the accompanying expansion of trade deficits
may bring considerable problems.
- trade deficits have to be financed - one way is to borrow
more money from abroad, but this will increase our
countries debt; another is to divert investment away
from important areas of the economy such as agriculture, industry, education and health.
- in this way, high trade deficits in the South constrain growth and produce a higher level of dependency
Trade agreements:
- Countries use tariffs and quotas to protect their domestic economies
, - Trade blocs have led to growing economic regionalism but they create tension between member and non-member
states in a region e.g. European countries that aren't a member of the EU have disadvantaged trading deals and thus
may develop slowly
- EU farmers benefit from CAP so their costs of production can be lower than in other nations thus they can afford to
sell their produce for less favouring their trade
*TRADING BLOCS - a group of countries who have joined together to stimulate trade between them, reduce barriers between
them, etc.
1. FREE TRADE AREA - no tariffs or quotas between members e.g. NAFTA.
2. CUSTOMS UNIONS - common external tariff on non-members e.g. Mercosur (South America).
3. COMMON MARKETS - in addition to free trade of goods and services, also allows free movement of labour and capital.
4. ECONOMIC UNIONS - common economic policies e.g. EU.
advantages disadvantages
FDI - larger market attracts further investment by TNCs as Regionalism - to reduce costs and maximize profits, some
the costs of production is low in that area areas lose out and unemployment
e.g. any production in the EU can be sold without a tariff to increases
any member states Concessions - benefits may not be seen in some member
Increased investment stimulates job opportunities and rising states instead benefitting the whole bloc
incomes Loss of sovereignty - countries lose their ability to make
Competition - economies of scale and comparative their own decisions
advantage between member states - increases Interdependence - one country is heavily affected by
efficiency others in the bloc
Protectionism - protect domestic industries from cheaper Inefficiency - inefficient manufacturing and production is
imports being protected e.g. CAP or steel
production
The role of the World Trade Organisation (WTO) and free trade.
An intergovernmental organisation that regulates international trade. It operates a system of trade rules to help producers of
goods and services, exporters and importers conduct their business.
➔ promotes trade by reducing tariffs and other trade barriers to the mutual advantage of members
➔ gives the weak a stronger voice, trade without discrimination and protects fair competition
➔ reduces trade tensions and promotes peace and endorses harmony
➔ helps countries develop by stimulating economic growth and employment
➔ encourages choice
➔ encourages good governance → shields government from lobbying
➔ supports environment and health
➔ cuts the cost of doing business internationally and cuts living costs / lessens lifestyle cost
WTO principles:
- Non-discrimination - country can't discriminate its trading partners or between its domestic product/service and
foreign product/service
- Openness - reduction or removal of tariffs, bans and quotas
- Stability, predictability and transparency - foreign companies, investors and governments should be confident that
trade barriers won't be raided arbitrarily - encourages investment, job creation, consumer choice and lower prices.
WTO requires trade policies to be transparent
- Promote competition - aims to discourage 'unfair' practices such as export subsidies and dumping products below
normal value to gain market share
- More benefits to LICs - longer time periods to implement agreements and commitments, measures to increase their
trading opportunities and support to help them build their trade capacity etc.
- Protection of the environment
