Globalization and trade

What is

The term globalisation is contested,

a general definition is

An increase in the flow of goods,

services, people,
across
Basically
thecapital
World
is
national borders in order to create a
shrinking.
more integrated
and interdependent
world economy.

hat factors have lead to globalisation

Advances in transport
Improved transport means
that people and goods can
be moved around the world
more quickly. Distance
between places hasnt
changed, but the time
needed to cover those
distances has.

Communication and technology

Improvement in
technology, such as the
internet, has meant that
capital (money) can be
transferred instantly
between locations. People
can also use telephones
and the internet to
communicate more easily
in real time.

http://www.flickr.com/photos/ldandersen/3018122
11/

Development of mass media

Improvements in
technology have also lead
to the development of a
mass media, television,
radio and internet, far off
places now seem much
closer we can even see
them in real time.
http://www.flickr.com/photos/skooal/322346446/

Shrinking world...
These factors have lead to
increased interdependence
between places they also
seem much closer than
they did.

http://www.flickr.com/photos/anjan58/1281306048

http://www.bized.co.uk/educators/16-19/economics/international/presentation/globalisationmap.gif

What is globalization?
The increasing social, technological, political and economic interdependence and interaction
between people, firms and entire economies around the world, through:

increasing ease of travel

increasing opportunities for firms to buy and

sell products in any country in the world

increasing opportunities for labour and

capital to move anywhere in the world

the growth of global financial markets

growing international trade in an increasing

variety of goods and services

Value of global trade in physical goods, 19602010

International specialization
Economies specialize in the production of those goods and services they are best able to produce
because they have the natural, human or man-made resources to do so
Specialization allows an economy to produce a greater volume of their goods and services more
efficiently. It therefore increases output, incomes and living standards
Economies then trade with each other to obtain the other goods and services they need and want

US aircraft

Spanish olive oil

Italian shoes

Some examples of international specialization

The gains from free trade

International trade involves the movement and exchange of physical
goods such as materials, component parts, equipment and finished
products as well as services, ideas, money and labour, across international
borders

Arguments for free trade

It allows countries to benefit from specialization

They can produce what they are best able to and then trade their surplus

It increases consumer choice

Consumers can enjoy a greater variety of goods and services from across the world

It increases competition and efficiency

Firms must improve their costs and product quality to compete with overseas producers

It creates additional business and employment opportunities

New and existing firms can expand their sales to growing consumer markets overseas

It allows firms to access the best workforces, materials and technologies from
anywhere in the world

Arguments against uncontrolled trade

Why control trade?

Trade with low-cost economies is threatening jobs in many developed

economies and reducing opportunities for less-developed economies
to grow their industries

Trade is increasing the rate at which we are depleting natural

resources

Trade may increase the exploitation of workers and the environment

in many less-developed economies as multinationals are attracted to
them by low wages and taxes

It has increased the gap between rich and poor nations

because developed and rapidly developing economies dominate global demand for
many natural resources, including foodstuffs, timber and metal ores, and have used
their purchasing power to force down their market prices

Trade barriers
Tariffs
Trade barriers are indirect taxes on the prices of
imported goods to discourage domestic demand
But imposing them often results in affected
overseas countries imposing tariffs of their own in
retaliation

Non-tariff barriers
Subsidies
These are government grants paid to domestic producers to reduce
their production costs, enabling them to sell their products at lower
prices than overseas producers

Quota
This is a limit on the volume of an imported good allowed into a country

Embargo
This is a ban on the importation of a product or products from overseas

Unreasonable quality controls, standards and licensing

requirements for imported products
These make the import of goods into a country more difficult
and costly

Size and weight restrictions

Import licence

Test certificates
Product labelling requirements

Arguments for trade protection

To protect infant industries
Protecting new firms from overseas competition gives them the time and chance to develop, grow
and become more globally competitive

To protect sunset industries

Protection from overseas competition will help to slow down the rate of decline in and loss of jobs
from some major industries, allowing time for other industries to develop to provide new jobs and
incomes

To protect strategic industries, such as agriculture, energy and defence equipment

So that a country is not entirely dependent on such important supplies from overseas countries

To protect domestic firms from dumping

Dumping is a form of predatory pricing. It involves one country flooding another with a product at
a price significantly below its market price to force rival producers out of business

To limit over-specialization
Trade barriers can help a country to maintain a wider range of different industries to reduce the risk
of its main industry failing or declining due to overseas competition

To correct a trade imbalance

By reducing the amount of imports coming into a country

Arguments against protectionism

It reduces the gains from trade

Other affected countries will retaliate against trade barriers

It restricts consumer choice

It restricts new business opportunities
Inefficient domestic firms protected from overseas competition
will continue to be inefficient

Trade liberalization involves the removal of

barriers to trade between different countries to
improve the global allocation of resources and allow
economies to realize gains from increased trade and
market access