Edexcel (B) Economics A-level

Transcription

1 Edexcel (B) Ecnmics A-level Theme 3: The Glbal Ecnmy 3.1 Glbalisatin Trade plicy and trade negtiatins Ntes

2 Prtectinism: Prtectinism is the act f guarding a cuntry s industries frm freign cmpetitin, by impsing restrictins n free trade. If a cuntry emplyed several prtectinist measures, then a trade deficit wuld reduce. This is because they will be imprting less due t tariffs and qutas n imprts. Infant industries might need prtecting. These are industries which are relatively new and need supprt. Prtectinism is usually shrt term until the industry develps, at which pint the industry can trade freely. It is based n the cncept f new industries facing high start-up csts, which fall as the industry develps. In rder t help the industry survive, it receives supprt. Prtectinism culd be used t crrect market failure. It can deal with demerit gds and prtect sciety frm them. Gvernments might want t prtect dmestic jbs and avid them being ffshred. Sme cuntries might impse trade restrictins as a frm f retaliatin against trade barriers impsed by ther cuntries. Types f restrictins n trade: Tariffs Tariffs are taxes n imprts t a cuntry. It culd lead t retaliatin, s exprts might decrease. The impact f tariffs is that the quantity demanded f dmestic gds increases, whilst the quantity demanded f imprts decreases. Tariffs result in higher prices fr cnsumers and a lss in cnsumer surplus.

3 The tariff diagram illustrates the effects f impsing a tariff. The riginal quantity f imprts is Q2 Q1, and the new quantity f imprts is Q4 Q3. The purple shaded rectangle shws the revenue the gvernment gains frm impsing the tariff. This culd help finance gvernment expenditure. The tw blue triangles shw the area f deadweight lss f welfare, as a result f the tariff. Qutas A quta limits the quantity f a freign prduced gd that is sld n the dmestic market. It sets a physical limit n a specific gd imprted in a set amunt f time. It leads t a rise in the price f the gd fr dmestic cnsumers, s they becme wrse ff. Subsidies t dmestic prducers This makes dmestic gds relatively cheap cmpared t imprts. It encurages dmestic prductin t increase, as shwn by a right shift in the supply curve, and the average price falls.

4 Hwever, it depends hw the subsidy is spent. In the EU, the Cmmn Agricultural Plicy subsidises dmestic farming. This helps the UK retain sme srt f primary sectr. The subsidy might encurage a surplus t be prduced, which culd be wasteful. It als depends n gvernment finances, and it shuld be cnsidered whether the industry is wrth subsidising r nt. Nn-tariff barriers Vluntary exprt restraints (VERs) This is when tw cuntries make an agreement t limit the vlume f exprts t ne anther ver a perid f time. They are used when gvernments want t prtect dmestic industries frm cmpeting imprts. It is usually suggested by the exprting cuntry, t avid even less flexible trade barriers being impsed. Embarges This is the cmplete ban n trade with a particular cuntry. It is usually plitically mtivated. Excessive administrative burdens ( red tape ) Excessive administratin increases the cst f trading, and hence discurages imprts. It makes it difficult t trade with cuntries impsing red tape, and is particularly harmful fr develping cuntries which are unable t access these markets. It is harder t ntice this type f prtectinism. Impact f prtectinist plicies n cnsumers, prducers, gvernments, living standards and equality: Prtectinism culd distrt the market and lead t a lss f allcative efficiency. It prevents industries frm cmpeting in a cmpetitive market and there is a lss f cnsumer welfare. Cnsumers face higher prices and less variety. By nt cmpeting

5 in a cmpetitive market, firms have little r n incentive t lwer their csts f prductin. It impses an extra cst n exprters, which culd lwer utput and damage the ecnmy. Tariffs are regressive and are mst damaging t thse n lw and fixed incmes, which culd increase incme and wealth inequality. Hwever, taxes culd raise mre revenue fr the gvernment, which culd be used t redistribute incme t the pr r imprve public services. There is a risk f retaliatin frm ther cuntries, s cuntries might becme hstile. Prtectinism culd lead t gvernment failure. Internatinal trade negtiatins: Rle f G20 The G20 is cmprised f 20 majr ecnmies. These are the US, the UK, the EU, Suth Krea, Argentina, Brazil, China, France, Australia, Canada, Germany, Italy, Japan, Mexic, India, Russia, Indnesia, Suth Africa, Saudi Arabia and Turkey. It was frmed with the aim f prmting internatinal financial stability and discussing imprtant plicy issues. The grup accunts fr 85% f grss wrld prduct and 2/3 f the glbal ppulatin. Hwever, the G20 des nt include the majrity f cuntries, and develping cuntries might be excluded. Mrever, there are different ecnmic interests and situatins within the cuntries in the G20, s it culd be difficult t crdinate plicies. Nevertheless, the G20 has been able t strengthen the rle f emerging ecnmies and refrm financial institutins. Rle f internatinal institutins (Wrld Trade Organisatin (WTO), Internatinal Mnetary Fund (IMF), Wrld Bank) The rle f the WTO in prmting free trade

6 The WTO prmtes wrld trade thrugh reducing trade barriers and plicing existing agreements. It als settles trade disputes, by acting as the judge, and rganises trade negtiatins. Every member f the WTO must fllw the rules. Thse wh break the rules face trade sanctins. In additin t trade in gds, the WTO cvers the trade in services and intellectual prperty rights. As f 2015, there are 161 member states in the WTO. The prgress made and difficulties faced by the WTO, such as agricultural disputes and trade agreements Trading blcs might distrt wrld trade r adversely affect thse wh d nt belng t them. There culd be an inefficient allcatin f resurces as a result f plicies such as the EU CAP. Cnflicts between blcs culd lead t a rise in prtectinism. A cmmn external tariff cntradicts the WTO s principles, since althugh there is free trade between members, prtectinist barriers are impsed n thse wh are nt members. Sme cuntries might argue that the WTO is t pwerful, r that it ignres the prblems f develping cuntries. This culd be since develped cuntries d nt trade cmpletely freely with develping cuntries, which limits their ability t grw. Setting up a custms unin r a free trade area culd be seen t vilate the WTO s principle f having all trading partners treated equally. This is especially if a cmmn external tariff is applied. Hwever, they can cmplement the trading system and the WTO strives t ensure that nn-members can trade freely and easily with the members f a trade blc. The Wrld Bank and IMF The Wrld Bank and IMF are smetimes called the Brettn Wds Institutins. They aim t prvide structure and stability t the wrld s ecnmic and financial systems. Almst every cuntry is a member f bth institutins. The gvernments f each member natins wn and direct the institutins.

7 The Wrld Bank mainly fcuses n develpment. The IMF tries t keep payments and receipts between cuntries lgical and rdered. Wrld Bank The Wrld Bank can lan funds t member cuntries, and its aim is t prmte ecnmic and scial prgress by raising prductivity and reducing pverty. The Wrld Bank is invlved in several prjects glbally, such as prviding micrcredit, supprting educatin, and helping the rebuilding f cuntries after earthquakes. Internatinal Mnetary Fund (IMF) The IMF aims t prmte mnetary cperatin between natins, and mnetary prblems can be cnsulted in the institutin. It als aims t help free trade glbally, s jbs are supprted. The IMF prmtes exchange rate stability, and tries t avid cmpetitive depreciatins in the currency. Members can als brrw frm the IMF, such as if they need t crrect an imbalance in the balance f payments. Bilateral trading agreements A bilateral trade agreement is an agreement between tw cuntries r grups t favur each ther s gds and services. The agreement might invlve a guarantee purchase quantity r the remval f prtectinist barriers. An advantage f a bilateral trading agreement is that nly tw parties are invlved, s the prcess is simple.