13.1 Trade Flows + Trading Patterns Flashcards
1
Q
What is global interdependence?
A
- describes the world wide mutual dependence - individual countries rely on other countries to supply the goods + services they can not produce themselves = trade
- countries have become more interdependent as many places do not have the raw materials + manufactured goods they need, so buy from elsewhere
2
Q
What is visible trade?
A
Involves items that have a physical existence + can actually be seen
3
Q
What is invisible trade?
A
Trade in services that include travel + tourism, and businesses and financial services
4
Q
What is a trade deficit?
A
When the value of a country imports exceeds the value if it’s exports
5
Q
What is a trade surplus?
A
When the value of a county’s exports exceeds its imports
6
Q
What is terms of trade?
A
The price of a country’s exports relative to the price r of its imports, and the changes that take place over time
7
Q
How does terms of trade impact global trade?
A
- country’s that rely on low value exports + need high priced imports, will need to export large quantities to afford them
- many LICs are primary product dependent = general low world market price
- when the price falls, a country’s economy will see a sharp fall in export income = higher trade deficit = can’t fund state led investment in education, healthcare + infrastructure
8
Q
Example of terms of trade?
A
- Zambia’s main export is copper
- 2000-2010 the Zambian economy grew by 7% due to high price of copper which was 80% of their exports
- this boom ended in 2011 - copper prices fell + Zambia had to borrow money to spend on infrastructure
9
Q
What is resource endowment?
A
the natural occurrence of resources in a country
10
Q
How does resource endowment affect trade?
A
- country’s that are endowed with a particular resource control + dominate world trade of that resource
- HOWEVER - this is dependent on value of export = agricultural products are low value + puts these countries at a disadvantage due to fluctuations
11
Q
Examples of resource endowment?
A
- OPEC made of many Middle Eastern countries regulate oil prices by controlling oil supply —> increase in supply = decrease in price + vice versa
- 80% of Uganda’s exports are agricultural products —> overproduction of e.g. coffee between 1995-2000 led to a fall in export price + their ability to earn foreign currency
12
Q
What is comparative advantage?
A
idea that countries will specialise in producing specific goods + services in which they are best endowed
13
Q
How does comparative advantage affect world trade?
A
- a country will trade its good to other countries to obtain the goods + services it needs
- HICs often specialise in high value goods rather than primary goods
- some countries dominate the production of manufactured goods through trade blocs
14
Q
Example of comparative advantage?
A
- Japan is a big producer of high-tech + Germany of cars
- EU is a major trade bloc which charge high tariffs on imports outside of the bloc = protecting HICs + creating an unfair advantage as businesses in NICS/LICs find it difficult to compete in the world market
15
Q
What is locational advantage?
A
When location of market demand influences trade patterns
16
Q
How does locational advantage affect world trade?
A
- advantageous for an exporting country to be close to the market for its products = reduced transport costs
- some countries/cities are strategically located along important trade
- location can pose disadvantageous to some LICs, such as those in sub-Saharan Africa
17
Q
Examples of locational advantage?
A
- tourist industry in France benefits from large populations in neighbouring countries
- Canada’s manufacturing industry benefits from proximity to huge US markets = 70% of their exports went to the US in 2016
- Singapore located on the main route between India + Pacific Ocean
IN CONTRAST.. - south-Sudan is land-locked + unable to get to transport links in Sudan due to conflict between the two countries
18
Q
What is investment?
A
- act of committing money or capital to an endeavour with the expectation of obtaining additional income or profit
19
Q
How does investment affect world trade?
A
- investment is key for many countries to increase trade + growth
- the amount of money TNCs invest is dependent on the security of their investment, which relies on the economic, social + political stability of the country
- most likely to invest in NICs = established infrastructure + low labour costs
20
Q
Examples of investment?
A
- sub-Saharan African countries not attractive for investment —> political unstable = conflict in South Sudan + Sudan, poor infrastructure + no trade links due to land lock nature
- NICs such as China highly attractive = China is now a leading export country
21
Q
How does historical factors affect world trade?
A
- historical international relations such as colonial ties e.g. commonwealth led to world wide trade dependency + why poorer tropical countries have limited share of world trade
22
Q
Examples of historical factors
A
- UK still has strong trade links with countries within the commonwealth —> historically they exploited LICSs in the empire to boost England’s economy
- made LICs unable to develop like LICs outside of empire
23
Q
How are changes in the global market affecting global trade?
A
- rapid growth of NICs have bought economic strength = BRIC countries (Brazil, Russia, India + China) are known as emerging economies
- enabled rapid industrial growth, technological development + employment opportunities
- sub-Saharan Africa still not seen these benefits = primary product dependent = vulnerable to trade inequalities
24
Q
Examples of changes in the global market?
A
- the developed country grew at a rate of 2.1% in the first decade of the 21st century —> emerging markets grew at 4.2%
- HICs controlled 64% of the global economy in 1990 —> fell to 52% by 2009
- apparel industry has opened doors for international trade for Bangladesh = enabled through investment by TNCs
25
How are trade agreements affecting world trade?
- trade bloc = countries that share trade agreements between each other —> regional trade agreements have increased in the last 20 years
- those outside trade blocs disadvantaged due to being subject to tariffs = limiting their economic development
26
Examples of trade agreements?
- 1990 = fewer then 25 trade agreements
- 1998 = more than 90
- e.g. EU, NAFTA, ASEAN
27
What is the WTO?
- deals with the rules of world trade = primary function is to ensure that trade flows as freely as possible
- established in 1995
- permanent organisation that has the power to arbitrate trade disputes
28
Benefits of the WTO?
- overall very successful = average tariffs are only a tenth of what they were before 1995 under GATT + world trade has been increasing at a faster pace than GDP
- It promotes free trade which raises incomes, increases standard of living + stimulates economic growth
29
Limitations of the WTO
- in some areas protectionism (e.g. using tariffs on imported goods) is still an issue, particularly in clothing, textiles + agriculture
- critics believe the WTO should be paying more attention to the needs of LICs, making it more easier for them to be involved in fair trade + gain from the global economy
- HICs are often given decades to adjust their economies to the removal of tariffs on imports of textiles + agricultural products from LICs - but LICs are pressurised to open their borders immediately to banks + telecommunications companies + other services from HICs
30
WTO + India
- India joined the WTO in 1995 + were immediately forced to drop all their tariffs
- this put India at a disadvantage as they didn’t have time to adapt their economy, which early members of GATT were granted
- this led to a flood of foreign imports from countries such as USA, Malaysia + Thailand —> leading to a sharp fall in price of India’s domestic food goods
- e.g. price paid for coconuts dropped by 80% because everyone is buying the cheaper foreign imports, undercutting local producers
31
Why did the USA impose tariffs of 30% on steel imports?
- US needed to protect its fragile steel industry = more than 30 US steel producers were made bankrupt 1997-2002
- there was also a serious over production problem with the world steel making capacity being 20% higher than current demand
- the US were considered inefficient + high cost compared to their foreign counterparts, with strong union presence demanding higher wages + health insurance
32
How did America’s trading partners react to the steel war?
- not happy = trade unionists warned that the new trade barriers imposed by the US could lead to 5000 job losses in the UK + 18,000 in Europe
- the countries affected argued the US was breaching WTO rules
- these countries also demanded compensation from the US for the effect of the tariffs
33
How successful was the WTO in dealing with the steel war?
- would take up to two years for the WTO to reach a judgement, therefore significant damage could be done in the intervening period to the steel industries of those nations affected
- EU stated that any retaliatory action would be within WTO rules
- overall this dispute was the last thing that the global steel industry (worth $500 billion) needed
34
Criticisms of WTO in relation to free trade
- fundamental issue = does free trade benefit all those concerned? Or is it a subtle way in which rich nations exploit their poorer counterparts?
- most critics of free trade accept that it does generate wealth but they deny that all countries benefit from it
- e.g. India
35
Effectiveness of WTO in solving trade disputes?
- members are expected to seek recourse through the WTO’s dispute-settlement system rather than take direct action themselves
- over 400 disputes were brought to the WTO 1995-2011
- less than half resulted in the establishment of a dispute panel
- more than 90% of rulings have been complied with by responding countries
- less than 4% resulted in sanctions by complaining countries
- average time taken in panel proceedings is 10 months, where as in other international organisations or national courts time taken can be 2 to 5 Yeats
36
Trade wars between US + China (2018-2021)
- role of WTO had little impact = trump continued to impose tariffs + took little notice of WTO decisions
- US GDP down by 2.5% + world economy down by 1% as result of the trade war
- 4 years on US imports from China have only recently returned to pre-trade war levels
- case was first brought to WTO by China + US could not justify tariffs = two rivals resorted to “self-help” without using WTO dispute settlement system
- questions the role of the WTO as an adjudicator in trade disputes
37
What is the nature/role of fair trade?
- the fair trade foundation is concerned with introducing better pricing, suitable working conditions + fairer terms of trade for farmers + workers in LICs
- for products such as coffee, cocoa, cotton etc. Fairtrade supports small scale operations in order to guarantee farmers with a stable income
38
How does fairtrade support small scale farmers?
1. Guaranteeing a minimum price for their products = if the market price is higher than the minimum price for that product, the farmers + workers receive the market price. If the market price falls below the minimum they will be payed the higher, minimum price
2. Farmers receive a fair trade premium = an additional sum of money paid on top of the fairtrade minimum price that can be invested into social, environmental + economic projects to improve their business + community
3. Supports plantations through companies that employ large numbers of workers on estates = they protect workers rights through health + safety, protect working conditions + introduce measures found in HICs
39
Fair trade in Ghana
- Cocoa farmers in Ghana who are part of the Kuapa Kokoo have a minimum fair trade price set at $1600 per tonne
- they receive a premium of $150 per tonne = used to invest in more sustainable farming methods to ensure the long run of cocoa farming e.g. maintaining soil health + water supply through good agriculture management —> this provides security for the future
- collaboration between the Kuapa Kokoo + the body shop, Christian aid + comic relief led to the formation of divine chocolate company in 1998 = sold in Uk, Netherlands + USA —> provides fair prices + shares profits made to go towards community projects
- all this improve the lives of farmers in LICs
