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It has been observed that the world might be splitting into large trade blocks. What is a trade block, and how might this trend affect world trade and living standards?

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Introduction

It has been observed that the world might be splitting into large trade blocks. What is a trade block, and how might this trend affect world trade and living standards? Economists are divided into three different groups that approach to free trade differently. Some believe that free trade should be limited as much as possible, some believe that free trade should happen to a certain extent and the others believe that all trading barriers should be removed and create an unprotected free trade zone between all countries in the world. The group that supports the last argument is the GATT which was formally the WTO. With the recent emergence of trading blocks, this idea of free trade has become harder to achieve since a trading block is when few countries join and use protectionist measures upon each other but not to other countries. ...read more.

Middle

EU has agreed on removing all trade barriers upon its member countries. Also the NAFTA which is the North American Free Trade Association, is a tree trade agreement between the US, Mexico and Canada. Regional trading blocks, which have been formed with neighboring countries, have been beneficial since most times since countries have large quantities of trade with countries close to them. Therefore un-necessary tariffs and process of trade between these neighboring countries are eliminated. Although regional trading blocks are beneficial, when compared to the benefits created by international free trade, it is shown that there is only a slight decrease in prices. However it does not encourage specialization and therefore, productivity is only increased slightly prices are only able to go down to a certain extent. ...read more.

Conclusion

Also by eliminating competition with foreign companies, would create the domestic firs to become less efficient and hence, prices wouldn't drop and quality improvements would not be achieved since there is no pressure on them. Due to the following arguments, it is shown that trading blocks only seems to be partially effective and it would actually hinder international free trade. Therefore the trading blocks have actually caused businesses to become less efficient and high prices of products which can be modified by free trade. Also free trade would allow many countries in Asia and Africa, where most LEDC's(less economically developed countries) located, to concentrate on what they are best at producing and export more on the international market and therefore boosting their economy. ...read more.

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