Are trade blocs essential to the

Are trade blocs essential to the productivity and efficiency of an economy?

Rachel (Lower Sixth)

Trade blocs are voluntary international organisations that exist for trading purposes, in order to bring greater economic interdependence and security to the member nations. Typically, members of an individual trade bloc are often located within the same geographic area to enable freer flows of trade with neighbouring allies. Agreements have been drawn up which allow state boundaries to be crossed with ease by flows of goods and capital, by the removal of internal tariffs. Examples of trade blocs include the European Union (EU), ASEAN and the USMCA amongst others.

Trade blocs continue to bring benefits for transnational businesses, access to larger markets are one such benefit, enabling firms to grow as barriers to intra-community trade are removed. For example, in 2004 Tesco gained access to 75 million extra customers when 10 new nations joined the EU. Firms that have a comparative advantage in the production of a particular product or service also prosper, such as French wine makers that have a competitive advantage due to their rich soil and therefore produce a superior product which is widely consumed across a tariff-free Europe. Furthermore, trade blocs create an enlarged market which increases demand and therefore raises the volume of production and lowers manufacturing costs per unit. This results in an improved economy

of scale meaning products are sold more cheaply, consequently sales rise even further for the most successful firms. Moreover, smaller national firms within a trade bloc can merge to form bigger TNCs making their operations more cost effective. Therefore, trade blocs bring a huge plethora of economic advantages, strengthening economies and the businesses within them.

Whilst there are many advantages of trade blocs there are also various downsides of membership. If domestic industries are uncompetitive, they exit the market resulting in an increase in unemployment. Moreover, due to the increased economic dependence and interconnectivity of economies within a trade bloc, if there is an economic crisis, such as that of 2008, the crisis of one member country can spread to the economies of others. Furthermore, the loss of state sovereignty may cause conflict with domestic economic interests of some member states, such as that mirrored in the UK exit of the EU. Often decisions with trade blocs may be in favour of larger member economies. Finally, trade blocs can distort the benefits of world trade, as inefficient firms within a bloc can still survive and are protected from competition from more efficient firms outside the bloc.

The success of trade blocs for member economies is often recognised globally. This is demonstrated by the recent creation of the AfCFTA – the world’s largest trade bloc by the number of countries participating, which was made effective in 2019. The AfCFTA presents a major opportunity for African countries to develop and industrialize, potentially bringing up to 30 million people out of extreme poverty. Therefore, it is clear that the leaders of these countries do recognise the improvements a trading bloc can make to their economy’s productivity and efficiency. However interestingly, some of the world’s strongest trade blocs were created much more recently than one would expect – within the last 30 years, this may seem surprising because of the huge economic prosperity trade blocs have created. For example, the EU was founded in 1993 and NAFTA the following year. Despite their trade bloc’s recent creation, many member countries became developed economies over a century before; Great Britain post-industrial revolution (1760-1840) as well as the United States in the 1830/40s. Therefore, whilst trade blocs are fundamental they are not the only reason for economic growth and prosperity as many countries have only used trade blocs to further develop their economies.

Furthermore, the question surrounding the utility of trade blocs is further debated with the pivotal exist of Britain from the European Union.

In 2016 Britain voted to leave the EU trade bloc which ended free movement of trade and people between Britain and Europe.

It halted the financial support Britain offered to struggling member countries, with the focus instead on its own economic growth. However, the effects of this are still currently being seen, fuel shortages, drivers and secondary industry workers shortages resulting in delays, lack of supply and consequently higher prices are all a consequence of leaving the trading bloc. This has led us to question how educated voters actually were about the value of trade blocs at the time of the vote.

On the 28th of June 2021, Boris Johnson signed a UK-Australia trade deal which was our first major post-Brexit pact with the hope of expanding trade links with the Asia-Pacific. The deal covers trade liberalisation through agricultural products, services trade, and it enhances mobility and opens both countries to financial services and investment. This shows how not only trade blocs can cause economic growth but other independent trade deals and government policies can also drive this growth. The UK has set an example whereby they have not experienced any major economic slumps due to Brexit, however, obviously economic growth was greatly impacted by Covid.

It is clear that trade blocs work to improve members’ economies; however, they alone are not the only essential component stimulating productivity within an economy, instead it is caused by a combination of factors. Focusing on Britain, it is clear the EU has benefitted the country historically but looking into the future, being within a trade bloc was deemed non essential to our economy; instead, a whole range of economic policies are including new negotiations and agreements with a range of countries near and far.

Bibliography

Pearson Edexcel A-level textbook https://storymaps.arcgis.com/stories/9cf98320c8ca48fa841b969ddc496b97 https://www.tutor2u.net/business/reference/what-is-a-trading-bloc https://www.economicsonline.co.uk/ Global_economics/Trading_blocs.html https://www.history.com/topics/industrial-revolution/industrial-revolution https://www.worldbank.org/en/topic/ trade/publication/the-african-continental-free-trade-area https://www.economicshelp.org/macroeconomics/economic-growth/causes-economic-growth/ https://www.theweek.co.uk/brexit-0 https://www.gbm.hsbc.com/insights/global-research/uk-australia-trade-deal