• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Evaluation of Trading Blocs

Extracts from this document...

Introduction

TRADING BLOCS ESSAY QUESTION GARY KONG WHAT DO ECONOMISTS MEAN WHEN THEY REFER TO A TRADING BLOC? A trading bloc refers to a group of nations belonging to a mutual trade pact agreeing to give each other reduced trade tariffs and other accommodations while imposing trade barriers and restrictions to nonmember nations. EVALUATE THE LIKELY EFFECTS OF MEMBERSHIP IN A TRADING BLOC. As the primary goal of a trading bloc is to encourage free trade among nations, its advantages are similar to that of free trade, including: economies of scale, cheaper products, efficiency, greater variety of products, better quality of products, job opportunities, and larger quantity of products. However, these advantages do not consider the different groups of people implicated and the circumstances surrounding them. While trading blocs may encourage job opportunities by encouraging growth in nations with a comparative advantage in producing a particular product, industries in nations with less comparative advantage may be disadvantaged. ...read more.

Middle

On the other hand, less restrictive trade may lead firms to be able to increase profits by outsourcing production to cheaper countries, and increasing the market for which they are able to sell their products. As evidence of this, the birth of massive conglomerates such as Sony and Toyota are the result of increasing global trade. Trading blocs is likely to impose protectionism against nonmember countries. This may lead to trade diversion, in which the entry of a country into a customs union leads to the production of a good or service transferring from a low-cost producer to a high-cost producer. This leads to efficiency loss and loss of consumer surplus. For example, in a hypothetical situation: the USA had been importing cell phones from China at a cheap cost, until NAFTA imposes tariff agreements on China which leads to phones being more expensive than phones in Mexico. ...read more.

Conclusion

However, NAFTA lead to the elimination of these tariffs, which lead to the goods being produced more cheaply, causing a gain of efficiency and consumer surplus, which would benefit consumers and producers. In reality, both trade creation and trade diversion will occur within a trading bloc. The issue is whether there is net trade diversion or trade creation. This will depend on various factors, including the conditions of comparative advantage between nonmember countries, which had previously been trading with member countries, and the conditions between member countries. Members of trading blocs may be disadvantaged in that they are likely to lose control over political and economic affairs. While trading blocs will tend to impose regulations that benefit all of its members, political and economic conditions will inevitably differ between member countries. Should a trading bloc impose regulations such as high interest rates, some countries may be benefitted more than others may. Countries facing high inflation, for example, may benefit from this, while others seeking to stimulate economic growth may find this disadvantageous. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. Extended Essay

    The new gas price subsidy system affects particular social groups differently. In most cases someone with a lesser income has a higher PED (income effect)16 and thus spends a greater proportion of their income on gas bills.

  2. Fair Trade

    Life expectancy at birth 2006 73.9 years Adult literacy 91.5% Gross enrollment ratio in education 71.5 GDP per capita PPP US$12,536 From the HDI it is evident that Malaysia's state of development is relatively high in comparison to other Asian nations in the region.

  1. Inequalities associated with the global trading system + Letter to Mr David Walker.

    In Africa, farming accounts for up to 70 percent of employment and is one of the main sources of income for many

  2. 15 Historical Economic Questions on Mercatilism and the Development of European Countries.

    This mechanism supported Smith and shared a solution to the issue of inflation, which correlated, strongly with Smith?s beliefs of an invisible hand. The system implied that net importations of gold would lead to inflation, making these countries less competitive and shifting gold imports towards countries experiencing lower prices due to deflation.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work