13.1 - Global trade UNFINISHED

Define trade

Exchange of goods, money, and services between countries and regions

define visible and invisible trade

visible - exchange of physical goods

invisible - exchange of services

define commodities

raw materials/basic goods

e.g. minerals, oil, gas, agricultural products

define trade deficit

imports are greater than exports

define trade surplus

exports are greater than imports

three main global trade pathways

• between HICs, North-North trade

• between HICs and LICs, North-South trade

• between LICs, South-South trade

why is most trade still between HICs

• large consumer market

• high purchasing power

• advanced manufacturing

• efficient transport infrastructure

• trade blocs: 60% of the EU’s trade is internal

MICs’ usual role in global trade

export manufactured components and consumer products to HICs

e.g. China is the workshop of the world, largest exporter of goods due to highly integrated global supply chains

LICs’ usual role in global trade

dependent on exporting cheaper primary commodities, lacking manufacturing infrastructure to get value added, has to import more expensive manufactured goods - UNEQUAL EXCHANGE

why has China become the dominant trading partner for many countries, replacing the USA (3)

• rapid industrialisation to become a major manufacturing power

  • attracted TNCs with cheap available labour and SEZs

• more complex supply chains, increasing chance of China being involved

• running out of raw materials, increased imports from S. America and Africa

examples of 3 LICs and their primary commodity export to China

Oil - Angola

Copper - Zambia

Iron ore - South Africa

key global maritime chokepoints

strait of hormuz (persian gulf)

straits of malacca (malaysia)

suez canal

panama canal

bab el-mandeb strait (yemen)

maritime chokepoints definition

narrow channels through which a large volume of trade passes

how can a central location affect a country’s trade

act as natural trade crossroads, lowering the friction of exchange

4 ways colonialism has shaped trading patterns

single product export-oriented economies - vulnerable

infrastructure designed for extraction not manufacturing

establishment of core periphery relationships widening wealth gap

path dependency - difficult to shift economy

define neo-colonialism

some post-colonial trade relationships continue to resemble colonial patterns

define resource curse - and EXAMPLE

DRC

exploited by colonial powers for resources (cobalt, copper, gold), geared towards commodity export not manufacturing, unequal exchange

even today most mines are controlled by TNCs, especially Chinese

corruption prevented money from benefiting the public and deterred investment

EXAMPLE - neocolonialism: cocoa in Ghana

Ghana only processes 30% of their cocoa, but usually only into intermediate products

• Much of this happens in the Accra free zone with tax breaks

no dairy industry in Ghana, milk must be imported

refrigeration costs + unreliable power grid

almost no local market for chocolate

EXAMPLE - escaped neocolonialism: Malaysia

colonial times: tin and rubber

now: semi conductors and electronics, thanks to strong gov policies to attract investment

EXAMPLE - indian economic nationalism/protectionist policies

strict regulation and tariffs on imports - promote domestic business growth

TNCs require Indian business partner

global middle class definition

earning between $10-100 per day

Difference between impacts of colonialism on African and Asian countries

Asian:

• strong gov policies to either attract foreign investment (China, Malaysia) or bolster domestic growth (India)

African:

• unstable governments and corruption, and intervention from colonial powers

factors affecting changes in supply WITH EXAMPLES

technological advances

• fracking dramatically increases US oil production → far less dependence on middle east

climate variability/natural disasters

• drought, disease, climate change → reduced cocoa production in West Africa → prices rise

political instability/conflict → sanctions

• Russia/Ukraine → no international grain exports → African countries grain prices increased

gov policies

factors affecting changes in demand WITH EXAMPLES

pop growth

urbanisation

industrialisation

• Chinas rapid industrialisation → demand for iron ore → new trade routes like Aus-China

rising income

sanctions

• Russia/Ukraine → less demand for Russian gas, but Russian oil exports to India and China increased

how has containersation revolutionised transport

challenging to standardise infrastructure and expensive to build initially but:

• faster loading/unloading rather than break bulk loading

• reduced labour cost

• reduced shipping costs

reduced the FRICTION OF DISTANCE

economy of scale

2 ways ICT revolutionised trade

Global Supply Chain management

• EPOS (electronic point of sale) data triggers automated manufacturing orders

• GPS allows TNCs to track visible goods - no expensive warehouse stockpiling

Just-in-time JIT) production

• goods arrive at factories exactly when needed

• complex production networks

How does the BRI/New Silk Road benefit China

• establishes revolutionary rail and maritime pathways for trade

• when countries cannot pay back, they push for agreements giving them control over the ports → strategic control points across Asia

peripheral marginalisation

landlocked LICs (Chad) lack deepwater ports or under sea fiber optic cables → frictional costs of distance increase

what is FDI

Foreign direct investment: when companies, usually large TNCs, invest in another country

why do low income countries receive low FDI even if strong natural resources WITH EXAMPLE

DRC lacks political stability, financial infrastructure, transport infrastructure

low FDI inflow - no access to credit

cannot invest in itself, relies on commodity export, missing out on value added

perpetuates core-periphery model

overall impact on global trade caused by levels of financial resources/infrastructure (HIC, MIC, LIC)

• global core, dominated by HICs, have high capital reserves and strong access to credit

  • can invest, receive and give FDI, export high value goods

• emerging economies attract large amounts of FDI since they are still growing and seem profitable

  • supports manufacturing and export led growth, enables to give FDI

• LICs often suffer from debt, unstable currencies, and high interest on loans

  • unable to invest, do not attract FDI, rely on commodity exports

has india fully harnessed its demographic dividend

expanding education levels and growing technical expertise

but high levels of red tape and persistent dominance of informal sector

some economic factors affecting global trade

• Stable economy → FDI → economic growth → more FDI

• HICs export manufactured goods, get wealthier

• LICs export commodities, make less per item

some political factors affecting global trade

• conflict

  • trade routes closed (e.g. Strait of Hormuz)

  • embargos

• tariffs

• SEZs

• trade blocs

• protectionist policies

• corruption preventing economic growth

impacts of workforce characteristics on global trade

• global shift in labour intensive manufacturing to emerging economies + deindustrialisation in HICs

  • large labour pools, lower wages, few labour regulations

• E.g. South Korea has benefited from investment in education

• some HICs (Germany) have significant high value manufacturing sectors

  • highly skilled workforce

• youthful populations arent always a driving force for economic growth, require education

what is the EU single market

European trade bloc allowing free movement of goods

2/3 of EU trade occurs within it

common external tariffs make imports from outside EU more expensive - protectionism

Subsidy called Common Agricultural Policy favours internal trade of agricultural products

bilateral trade agreement and reasons they are used as opposed to trade blocs

trade deal between two countries designed to reduce barriers and increase trade

used by wealthy HICs to secure commodity supply routes from HICs, or to secure specific high demand visible goods from other HICs

UK-India trade deal

Lower tariffs (e.g. cars and whiskey)

Indian workers won’t have to pay national insurance first 3 years in UK

list and define 4 general protectionist policies (with examples)

tariff

• taxes on imports → consumers switch to domestic products → lowers international trade (e.g. USA and China recently - steel, washing machines)

quota

• limit quantity of imported goods, protecting domestic producers (e.g. UK India deal)†

subsidy

• government support domestic producers financially to compete with foreign sources (e.g. Common Agricultural Policy in EU)

sanctions/embargos

• restrictions on imports for geopolitical reasons (e.g. Russian oil and gas)

price-setting

prices of commodities are controlled by producers/governments, overriding free market supply and demand

what is OPEC

example of a resource cartel, an organisation controlling oil production among major exporters (Saudi, UAE, Iraq, Kuwait) to keep prices high enough

supply over 40% of global oil production

TNC definition

company that owns or controls production in more than one country

define global production network

worldwide supply and manufacturing chain involved in the creation of a product

offshoring vs outsourcing

offshoring - relocating part of its business to another country

outsourcing - hiring another company to carry out something that was previously done in-house

TNC benefits† on host country

• jobs

• attract more FDI

• technology transfer

  • training programmes → upskill population

• infrastructure development

• for consumers: lower prices and greater product availability

TNC disadvantages on host countries

• outcompete local businesses

• exploit workers

• repatriation of profit

• environmental damage