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  • About the Economic Futures Hub
  • Unit 1: Economics of the Market
  • Unit 2: UK Economic Activity
  • Unit 3: Global Economic Activity
  • Data for Applied Economists
Understanding Global Trade

Understanding Global Trade

  • Imports and Exports
  • What is a good?
  • What is a service?
  • What are imports?
  • What are exports?
  • Lets have a look at what the UK imported and exported in 2023…
  • 🌍 Who are the UK’s main import and export partners?
  • We know what types of goods and services the UK trades, but who did they trade it with in 2023? Lets have a look 👀
  • The UK’s main trading partners often vary year-on-year for several different reasons. Here’s a few recent changes in trading relationships the UK is involved in:
  • Recent trends in UK imports and exports
  • ⚖️ Trade deficit, surplus or balance?
  • What is globalisation?
  • Advantages and Disadvantages of Globalisation
  • ⛔ Suez Canal Blockage ⛔
  • Having explored the various pros and cons of globalisation, it’s important to understand why countries engage in international trade in the first place.
  • Two important economic theories explain why countries specialise in producing certain goods or services: absolute advantage and comparative advantage.
  • What is absolute advantage?
  • What is comparative advantage?
  • 🇬🇧 Does the UK have absolute and/or comparative advantage?
  • Common types of trade barriers
  • 🚧 Reasons for and against trade barriers
  • Trade Protection - ‘America First’ 🇺🇸
  • 💨 Trump shows no signs of wanting to slow down
  • 🥊 Has any country retaliated to America’s tariffs?
  • 🛫 Trade dispute - Boeing vs Bombardier
  • 🙏🏻 It’s not all negative… countries do work together for a common goal
  • Trade Agreements
  • 🤝🏻 Different types of trading agreements
  • These are the most common types of trading agreements.
  • European Union
  • ✅ Trade and Cooperation Agreement (TCA)
  • ASEAN
  • 🆓 Advantages and disadvantages of trading freely
  • ⛔ Advantages and disadvantages of being in a trading blocs
  • Knowledge Checkpoint

Imports and Exports

What is a good?

♟️
A good is a physical product that satisfies people wants and needs
‣
Examples include computers, furniture and food

What is a service?

✈️
A service is an intangible product or activity that one party offers to another for a fee. Services are non-physical in nature and cannot be stored or owned in the same way as physical goods. It often involves a face-to-face interaction between buyer and seller.
‣
Examples include transportation, healthcare and hospitality and tourism

What are imports?

☝🏻
An import refers to a good or service that is purchased by one country but manufactured in another
‣
Imported goods or services are appealing when domestic industries cannot produce similar items at a low cost or with high efficiency
‣
🛢️ Many countries import oil because they cannot produce it domestically or cannot produce enough to meet the country’s needs

What are exports?

☝🏻
An export refers to goods and services that are made in one country and sold to buyers in another
‣
Exports can boost a firm’s sales and profits, offering an opportunity to capture significant global market share, however this typically comes with greater expose to financial risk
‣
🚜 Many countries export agricultural products because they can produce more than they need, allowing them to meet global demand and benefit from international trade

Both imports and exports are the oldest methods of economic exchange and together make up international trade.

⭐
It’s important to note that companies will often use net exports as a measure of economic activity. This is simply total exports - total imports

Lets have a look at what the UK imported and exported in 2023…

🧤
Trade of goods
🚕
Cars were the top import (over £40 billion) and export (over £36 billion) for the UK in 2023
‣
8 out of 10 cars produced in the UK are exported abroad to 130 different markets internationally (SMMT)
‣
This is attributed to the increased demand in electric cars as a result of zero-emission vehicle targets recently set by governments around the world and additionally, the easing of supply chain shortages of semi-conductors.
‣
Follow the link if you want to learn more about the automotive industry in the UK:
UK car production up 13.1%, driven by uplift in exports

The vehicle manufacturing industry was helped by an easing in the supply chain problems that have hurt it since early 2021, particularly with regards to semi-conductors.

news.sky.com

UK car production up 13.1%, driven by uplift in exports
💊
High imports and exports of medicinal and pharmaceutical products reflects the UK’s strength in the industry and participation in global medical research and development - example?
🛢️
Refined oil and crude oil were both major imports
‣
However, this fall in value is roughly 31% for imports and 40% for exports compared to 2022 (ONS)
‣
This substantial decrease in linked to the drop in oil and gas price
‣
Although, it’s worth reminding that the oil and gas prices sky rocketed in 2022, largely due to the Russian invasion of Ukraine, and that oil and gas exports and imports are still high
‣
For more information on the UK’s trade of goods in 2023, take a look at this ONS review:
UK trade in goods, year in review 2023.pdf56.4KB
🏦
Trade of services

- maybe expand on the different service types

🌍 Who are the UK’s main import and export partners?

We know what types of goods and services the UK trades, but who did they trade it with in 2023? Lets have a look 👀

The UK’s main trading partners often vary year-on-year for several different reasons. Here’s a few recent changes in trading relationships the UK is involved in:

🇺🇸
The US has always been one the UK’s biggest trading partner but after the UK’s decision to leave the EU, there’s been an increased focus on strengthening US-UK trade ties as the UK seeks new partnerships outside the EU.

By country, the US and UK are each other’s main foreign investors.

‣
The Top US goods exported included oil and gas, nonferrous metal and aerospace products
‣
The Top US goods imported included motor vehicles, aerospace products and pharmaceuticals and medicines
‣
The top traded services were financial services and various other business services

In June 2023, the ‘Atlantic Declaration’ was signed between Rishi Sunak and Joe Biden, introducing a renewed partnership agreement between the UK and the US. Some of the main agreements are:

‣
Working together to make data sharing easier between businesses, potentially saving UK companies money
‣
Cooperating on critical mineral and clean energy
‣
Developing and regulating new technologies like AI, 5G, and quantum computing
‣
Considering ways to increase investment in each other’s tech sectors
‣
To learn about this agreement in more detail:
UK and US launch first-of-its kind economic partnership

‘Atlantic Declaration’ agreed by the Prime Minister Rishi Sunak and President Joe Biden at the White House.

www.gov.uk

UK and US launch first-of-its kind economic partnership
🇷🇺
The UK’s trade with Russia has also reached historically low levels since their invasion on Ukraine in early 2022. The UK government have implemented a number of sanctions on a number of goods, like silver and wood products, fuel imports and iron (ONS).

We will look at these sanctions and the impact of them in more detail in the “Trade Barriers” chapter. Use this link for later on chapter about russia!

researchbriefings.files.parliament.uk

researchbriefings.files.parliament.uk

Trade with non-EU countries declined by 6.2% in 2023 compared to 2022 (UKICE). A couple of other main factors are China and Norway.

🇨🇳
The UK-China trade relationship has changed in recent years due to global politics.

After Brexit, the UK wanted to trade more with China to strengthen non-EU relationships, however, concerns about security and pressure from allies led the UK to reduce its economic ties with China.

Specifically:

‣
Security - the UK became concerned about relying too much on China for important goods and technologies with fears that this dependency could be risky if political tension increased
‣
The UK’s close allies, particularly with the US, encouraged a more cautious approach to China as western countries grew more worried about China’s increasing global influence
‣
Ukraine-Russia conflict - China’s support of Russia during the war made the UK and other countries rethink their dependencies, including those of China. In addition, the conflict highlighted how international tensions can quickly escalate and affect trade.
‣
For more information about the China-Russia conflict:
China-Russia: an economic ‘friendship’ that could rattle the world

After Putin’s invasion of Ukraine trade links between the two countries have strengthened. So have Beijing’s geopolitical ambitions

www.ft.com

🇳🇴
The UK’s trade with Norway has changed considerably in recent years, largely because of gas prices.
‣
Between 2021-2022 the UK’s trade value with Norway increased substantially as a result of the sharp rise in gas prices due to the Ukraine war and energy crisis. The UK paid much more but still received the same amount of gas. For more information:
Norway is now UK’s primary gas supplier and declining North Sea output means UK faces importing 80% of its gas and oil within a decade, warns OEUK report

Stay updated on the latest trends and insights from the Offshore Energies industry here. Our members get exclusive discounts on key guidance notes, industry reports, events and more.

oeuk.org.uk

Norway is now UK’s primary gas supplier and declining North Sea output means UK faces importing 80% of its gas and oil within a decade, warns OEUK report
‣
In 2023 the trade value with Norway dropped as gas prices began to return back to normal levels. This led to a big decrease in the value of UK-Norway trade.
🇪🇺
EU countries still make up a significant volume of trade with the UK, specifically 41% of UK exports and 52% of UK imports in 2023 (House of Commons Library).

This statistic could be attributed not the fact that the UK and EU has had a strong growth of trade, but instead because of a large drop in non-EU trade.

We talk about the impact of Brexit in more detail below ⬇️

Recent trends in UK imports and exports

🇬🇧

The Brexit Referendum in 2016 was widely talked about around the world and for years after. Brexit led to the UK leaving the EU single market and customs union (these will be discussed in the global trade section). Lets discuss how it impacted the UK imports and exports:

At first glance, it looks as if Brexit had no real impact on the UK imports and exports, however this isn’t necessarily the case.

‣
Firstly, the UK did not change trade relations with the EU until January 1st 2021 with the Trade Cooperation Agreement (TCA) was introduced, nearly 5 years after the vote so it’s not surprising we don’t see any immediate change after the initial vote in 2016. Want to know more about the TCA? ➡️ 
The EU-UK Trade and Cooperation Agreement

An agreement between the EU and UK that sets out preferential arrangements in trade that go beyond free trade agreements to preserve longstanding cooperation.

commission.europa.eu

The EU-UK Trade and Cooperation Agreement
‣
The impact of the TCA has hit small firm’s as their exports to the EU declined considerably, while larger firm’s exports were less affected, masking the overall impact. According the Thomas Sampson, the associate professor of economics at LSE, the TCA has reduced goods to the EU by around 30% for small firms (LSE)
‣
Since 2020, services exports have surpassed goods exports in value, helping offset the decline in goods exports, likely due to the change in trade costs of goods. This has made the total UK export value more resilient than expected by economists.
‣
According to ONS data, from 2010 to 2023, services exports increased by 63% in real terms, while goods exports grew by only 7% over the same period
‣
For more information, take a look at this financial times article:
UK exports of services have grown 9 times faster than goods since 2010

Economy’s shift away from manufacturing may have been accelerated by Brexit, some experts argue

www.ft.com

🦠

COVID-19 Pandemic

‣
Trade massively dropped during the COVID-19 lockdown, starting in early 2020. At the UK level, total exports fell from £689.0 billion in 2019 to £609.7 billion in 2020 and total imports fell from £716.6 billion to £603.4 billion (ONS).
‣
Lockdown brought about the implementation of several policies, including limiting cross-border movement and shutting down non-essential businesses
‣
These forced a decline in both exports and imports all across the UK
‣
This wasn’t just limited to the trade of goods, services also fell heavily year-on-year in the UK, apart from London and Northern Ireland (ONS)
‣
We can see signs of recovery during 2021, however, the UK’s performance in goods trade was the weakest out of all G7 countries, largely attributed to the UK not being able to take advantage of the post-lockdown goods trades boom across the world due to Brexit (The Financial Times)
‣
The degree of impact differed among various sectors, with UK nations and regions experiencing diverse effects based on their dependence on specific industries
🏴󠁧󠁢󠁳󠁣󠁴󠁿

The Fraser of Allander Institute investigates the effects of both Brexit and COVID on Scottish businesses and economy. Take a look:

Brexit & Covid Impacts on Business | FAI

How could the pandemic and the UK’s new trading relationship with the EU interact to affect Scottish businesses and Local Authorities?

fraserofallander.org

Brexit & Covid Impacts on Business | FAI

⚖️ Trade deficit, surplus or balance?

So, we’ve observed the UK sells fewer goods than it buys (deficit in goods) but it sells more services than it buys (surplus in services). The goods deficit is larger than the services surplus, leading to an overall trade deficit.

Several other countries around the world also operate in a trade deficit. For example, the United States has run a trade deficit since 1975 and in 2019 stood at $576.9 billion according to the US Census Bureau (BEA).

What is globalisation?

🌍
Globalisation is the process by which businesses, economies and societies operate on an international scale to provide or produce goods and services. As we have seen, the UK imports a large volume of goods and services from all across the globe.

Expanding into foreign markets continues to be one the most popular way to grow a business.

Globalisation has changed the various aspects of daily life and the way consumers shop. Harvard Business School estimates that 70% of Americans now shop online.

Additionally, globalisation has made post-pandemic remote working conditions possible for so many businesses.

Advantages and Disadvantages of Globalisation

👍🏻
Advantages:
‣
Growth - Businesses are able to tap into international markets, significantly expanding their customer base beyond domestic boundaries. This access to new markets and broad consumer groups can drive substantial revenue growth and encourage business expansion, enabling companies to achieve levels of growth that might be unattainable within their home markets alone.
‣
Spreading Risk - If a business has operations in various international markets, they can balance potential downturns in one area with growth opportunities in others. Overall stability and resilience in performance is enhanced.
‣
Opportunities for Poorer Countries - These developing nations are able to access global markets, allowing them to sell their products and services to a diverse range of wealthy countries. This opens up new opportunities for economic growth and development.
‣
Cooperation - Globalisation encourages international cooperation, as countries must collaborate to reap its economic benefits. This increased interdependence and mutual interest in economic prosperity has been associated with a decrease in global conflicts, although it has by no means completely eliminated them.
‣
Technical Knowledge - The international exchange of technical skills and information accelerates technological progress as companies are able to access and benefit from diverse expertise and innovations.
‣
Access to Labour - Nations are able to access a wider pool of labour. Developing countries can attract skilled professionals to boost their industries, while developed nations can outsource certain tasks to regions with lower labour costs, as a means to reduce production expenses and consumer prices.
👎🏻
Disadvantages:
‣
Language and Cultural Barriers - Language and cultural barriers can hinder effective communication and collaboration in international trade. These barriers can lead to misunderstandings, complicate negotiations and require significant investment in translation and localisation efforts. This can potentially hinder the efficiency and success of cross-border transactions and relationships.
‣
Local Laws - Businesses can be exposed to complex legal frameworks across different countries which can create challenges. The varying legal requirements can introduce additional compliance costs and limit the company’s ability to standardise its practices globally.
‣
Increased Competition - Globalisation means local businesses now have to compete with multinational corporations offering cheaper goods. This increased competition, coupled with greater consumer choice, drives prices down and raises quality expectations. This puts pressure on businesses to constantly innovate and adapt to the evolving consumer demands.
‣
Domestic Job Loss - Domestic jobs decline in certain kinds of work as companies decide to outsource work to regions with lower labour and production costs. This shift often affects workers in traditional industries like manufacturing, textiles, clothing and metals.
‣
Unequal Economic Growth - Bigger, more developed nations often have an advantage because they can produce things cheaper in large quantities and have more power in negotiations.
‣
Increased global recession risk - With the global economy being so tightly interconnected, economic troubles in one country can quickly spread to others, like a domino effect. This increased the potential risk of widespread economic downturn or a global recession.

⛔ Suez Canal Blockage ⛔

🚢
The Suez Canal is a man made canal built in 1869 in Egypt to connect the Mediterranean Sea with the Indian Ocean. It’s crucial for world trade as the efficiency gains from this shorter route is significant.

Between the 23rd-29th of March, ‘When the Ever Given’ one of the largest container ships ever built and nearly as long as the Empire State Building is tall, got stuck in the Suez Canal.

The global supply chain was thrown into chaos. About 12% of worldwide trade, around one million barrels of oil and roughly 8% of liquefied natural gas pass through that canal each day (BBC).

It froze almost $10 billion of trade a day. That’s roughly $400m and 3.3 million tonnes of cargo an hour, or $6.7m a minute! (BBC). Additionally, the backlog of crude oil drove the gas prices in the US up by $0.40 on the day of the accident.

Due to the blockage, other ships decided to change their route to avoid the canal. This shows just how important this canal was for world trade.

This event highlighted the vulnerability of global supply chains and the UK’s dependence on efficient international shipping routes. It demonstrated how a single incident across the world can rapidly affect prices, product availability, and business operations around the world.

Having explored the various pros and cons of globalisation, it’s important to understand why countries engage in international trade in the first place.

Two important economic theories explain why countries specialise in producing certain goods or services: absolute advantage and comparative advantage.

What is absolute advantage?

💯
Absolute advantage is when one country can produce a good more efficiently than another country. They can make more of a product using the same amount of resources.

Let’s look at two countries who both produce coffee:

‣
Country A - 100 workers make 100 bags of coffee per day
‣
Country B - 100 workers make 80 bags of coffee per day

Country A has an absolute advantage in coffee production because it can produce more coffee (100 bags) with the same number of workers as Country B (80 bags).

What is comparative advantage?

💲
Comparative advantage is when a country can produce a good at a lower opportunity cost than another country. Remember, opportunity cost is the cost of what you give up to produce something else.

Let’s look at two countries who both produce coffee and rice:

‣
Country A - can produce 100 bags of coffee OR 60 bags of rice
‣
Country B - can produce 100 bags of coffee OR 100 bags of rice

Even though both can produce 50 bags of coffee, Country A has a comparative advantage in coffee production. Why? Because to make 100 bags of coffee, Country A gives up 60 bags of rice and Country B gives up 100 bags of rice. Country A sacrifices less to produce the same amount of coffee, thus has comparative advantage.

🇬🇧 Does the UK have absolute and/or comparative advantage?

🎓
As we saw last chapter, the UK imports and exports a diverse range of goods and services.

In services:

‣
UK has strong comparative advantages in services, particularly in financial services, insurance, and cultural services (including education and publishing).
‣
This specialisation in services is more pronounced in the UK than in other developed economies

In goods:

‣
UK shows strengths in pharmaceuticals, beverages, aircraft, and art
‣
These advantages have remained relatively stable over the past 30 years

The UK’s position is enhanced by factors like its top universities, the global dominance of the English language, and London’s role as a financial center.

The comparative advantage of the UK’s goods and services have remained similar over the last 30 years.

🥃
Now, looking specifically at Scotland, the Fraser of Allander conducted research into Scotland’s economic strengths.

Revealed Comparative Advantage (RCA) is a transparent measure for examining the competitiveness of a country in exporting a good, relative to the rest of the world. A RCA greater than 1 would indicate that Scotland proportionally exports more in this particular sector than other countries in the world.

The table below provides a selection of sectors where Scotland is currently thought to have such an advantage. So, the RCA of 23.4 for Scotland’s beverages means that Scotland proportionally exports 23.4 times more beverages than other countries do. While petroleum and petroleum products are easily Scotland’s most exported product group, it ranks 4th in revealed comparative advantage.

To see the Fraser of Allander’s full report, follow this link ⬇️

fraserofallander.org

fraserofallander.org

🚧
Now, everyone wishes international trade was that simple. Countries often implement various measures to control the flow of goods and services across their borders. These measures are known as trade barriers.

Common types of trade barriers

💵
Tariffs are taxes imposed on imported goods. Importers pay these taxes to the customs authority of the importing country. When a tariffs is applied, it increases the cost of the imported product, which is usually passed on to the consumer. They are used by countries for a few reasons:
  • Make imported products more expensive compared to domestic ones
  • Protect local industries from foreign competition
  • Generate revenue for the government

To understand the full impact of tariffs on trade and the economy, it’s important to examine how they directly influence the prices consumers pay for goods.

This graph illustrates international trade without tariffs. It shows domestic supply (DS) and domestic demand (DD) curves. The equilibrium price in the domestic market is P, while the world price is lower at P*.

At the lower world price P*, domestic consumers increase their demand to Qw. However, domestic producers can only supply Qd at this price. This creates a gap between what consumers want and what local producers can supply.

To meet this excess demand, the country imports the difference (Qw - Qd). This import quantity represents the amount of goods brought in from other countries to satisfy domestic consumption at the lower world price.

The tariff raises the price from the world price P* to a new, higher price P1. This is shown in the upward shift on the price axis. At this higher price, domestic producers find it more profitable to make the good. This is illustrated by Qd moving to the right, indicating increased domestic production.

The higher price leads to a decrease in overall demand. We see this as Qw shifts to the left, showing that consumers buy less at the higher price. The gap between Qw and Qd narrows. This represents a decrease in imports, as more of the demand is met by domestic production.

🤏🏻
Quotas are limits set by a government on the quantity of a specific good that can be imported during a certain period. They are in place to:
  • Protect domestic industries by directly limiting foreign competition
  • Can lead to higher prices for consumers
  • Reduced product choices.

While tariffs increase prices through taxes, quotas limit supply directly.

👮🏻‍♀️
Licenses are special permissions given by a government to specific businesses, allowing them to bring certain foreign goods into the country. They work like this:
  1. The government decides which products need licenses
  2. Only businesses with licenses can import those products
  3. This limits the number of companies that can import, reducing the total amount of imports.

With licenses in place it means there’s less competition among imports, potentially higher prices for consumers and greater control for the government over what’s imported.

🚫
Sanctions are strict rules set by one country to limit or stop trade with another country. They’re like a “time-out” in international relations. Here’s how they work:
  1. A government decides to punish or pressure another country for political reasons
  2. It bans its own citizens and businesses from trading with that country
  3. This can involve stopping all trade or just specific types of business

Sanctions can harm the economy of the targeted country and are used to try change a country’s behaviour without using military force. Sanctions are different from other trade barriers because they are mainly used for political reasons, not economic ones.

  • For example - The United States put sanctions on Russia because of the conflict with Ukraine. This means American companies can’t do business with certain Russian banks (this will explained in more detail in a moment).
➕
Local Content Requirements are rules set by a government to make sure that a part or percentage of a product is made domestically. It’s like telling companies, “If you want to sell here, you need to use some of our local stuff.”

Governments do this to support local businesses and jobs and to develop certain industries in their country.

It can increase the costs for companies and higher prices for consumers but it helps grow and sustain local industries.

🚧 Reasons for and against trade barriers

We have just touched on some of the reasons why countries will impose different trade barriers, but lets quickly outline all of them in more detail.

👍🏻
FOR
  • Domestic Growth Opportunities - Trade barriers can promote domestic industry growth
    • Helps protect new industries, as new domestic companies can grow without facing tough global competition right away
    • Helps support existing industries as by making foreign goods more expensive, companies can invest more in their production and become more competitive
    • Declining industries are given additional government support by the government to help reduce any sudden economic shocks if they did close
  • Strategic Industries - Trade barriers can help safeguard industries that are crucial for a country’s security and self-reliance. These industries typically include energy, defence and agriculture. This helps a country stay more self-sufficient and less vulnerable to international pressures or disruptions.
  • Current Account Deficit - Trade barriers can help address a trade deficit by making imports more expensive or less available. This encourages people to buy more domestic goods and increase exports.
  • Labour / Environmental Regulations - Trade barriers can be used to address unfair advantages some countries gain from weak labour and environmental regulations. By making goods from these countries more expensive, trade barriers aim to encourage better global standards, protect domestic workers, and promote more responsible international trade practices.
  • More Jobs - Trade barriers can protect and create domestic jobs.
👎🏻
AGAINST
  • Stagnant Technological Advancements - Trade barriers can reduce the incentive for domestic companies to innovate. Without foreign competition, local firms may become complacent, investing less in research and development. This can lead to the country falling behind global standards.
  • Limited Consumer Choice - By limiting access to foreign products, it reduces the available options for consumers.
  • Increased Prices - By limiting foreign competition, domestic companies face less pressure to keep prices low and so consumers may end up paying more for goods without seeing any improvement in quality.
  • Increased Costs - Trade barriers can increase production costs for domestic manufacturers who rely on imported raw materials or components.
  • Isolation and Retaliation - When a country imposes protectionist measures, it may face political and economic isolation. Other nations often respond with their own trade restrictions, creating a cycle of retaliation or a ‘trade war’. We will look at some examples of them below.

Trade Protection - ‘America First’ 🇺🇸

🗽
During his presidency, Donald Trump implemented several protectionist policies as part of his “America First” agenda.
  • He introduced tariffs on imported solar panels and washing machines
    • For washing machines, a 20% tariffs was applied to the first 1.2 million units imported, with a higher 50% tariff on additional imports in the following year (New York Times).

These measures aimed to protect domestic manufacturing jobs but also led to increased prices for American consumers.

But what was his reasoning for this? He largely wanted to address the trade deficit with China. He also consistently accused China of unfair trade practices, arguing these harmed US manufacturing.

Joe Biden has also adopted an aggressive economic approach towards China and has continued to expand many trade restrictions:

  • Tariffs - Maintained about $360 billion worth of tariffs on Chinese goods that were imposed by Trump. He also increased tariffs on specific products, tripling those on steel an aluminium, and quadrupling them on Chinese-made electric vehicles.
  • Technology Controls - Introduced strict export controls to limit China’s access to advanced technology, particularly in areas like semiconductors and artificial intelligence.
  • TikTok - Taken steps that could lead to banning TikTok, the popular Chinese-owned social media app, due to national security concerns about data privacy.
  • Targeted Sanctions - Maintained sanctions on Chinese individuals and entities associated with human rights issues in place like Xinjiang and Hong Kong.

To learn about the relationship in more detail, check out these links ⬇️

The Contentious U.S.-China Trade Relationship

Trade between the world’s two biggest economies has ballooned in recent decades, bringing significant benefits but also perils that have led to calls to rethink the relationship.

www.cfr.org

The Contentious U.S.-China Trade Relationship

💨 Trump shows no signs of wanting to slow down

🇺🇸
During Trump’s 2024 presidential campaign, he proposed introducing a 10% tariff on all goods coming into the US and a tariff of 60% or more on Chinese goods. He said it was to protect American jobs as well as raise more revenue to offset an extension of his 2017 tax cuts.

We know that a tariff is essentially an additional tax on the good or service, which will fall on American consumers, a concern after two years of surging inflation. According to the Center for American Progress Action Fund, middle-income U.S. households would pay roughly $1,500 more in taxes per year the tariff is in place.

Additionally, during a campaign event in March 2024 Trump pledged to impose a 100% tariff on all imported cars and warned of a “bloodbath” for the American auto industry if he doesn’t get re-elected.

🥊 Has any country retaliated to America’s tariffs?

🇨🇦
In August 2020, Trump reimposed 10% tariffs on some Canadian aluminium products that had been lifted more than a year earlier. Immediately the day after, Canada retaliated and announced a $2.7bn tariff on US aluminium products.

Trump’s reasoning being to protect US national security, however this was called “ludicrous” by Canada’s Deputy Prime Minister Chrystia Freeland and criticised for hurting the economic recovery of both countries during the pandemic.

🇪🇺
In 2018, President Trump imposed significant tariffs on EU steel (25%) and aluminium (10%), citing national security concerns under a law called Section 232.

The EU soon responded by placing retaliatory tariffs on Harley-Davidson motorcycles, jeans, and bourbon whiskey. After this spirit exports to Europe declined by 20%.

Since, President Biden has been generally supportive of the tariffs, although he has made some adjustments. In 2022, he allowed “limited volumes” of EU metals into the US without tariffs. He also replaced some tariffs with a quota system, meaning EU steel and aluminium can enter tariff-free up to a certain amount, but anything over that quota still faces tariffs.

In response to these changes, the EU suspended its retaliatory measures until December 31 2023, as a goodwill gesture to continue negotiations.

🛫 Trade dispute - Boeing vs Bombardier

🛬
In 2016, Canada’s Bombardier secured a major deal to sell up to 125 CSeries airplanes to Delta Air Lines. In 2017, Boeing filed a trade complaint against Bombardier, accusing the Canadian company of receiving unfair government subsidies and selling planes below cost. They claimed Delta paid $20 million per plane, well below the estimated production cost of $33 million.

This led to the U.S. Commerce Department recommending a hefty 299.45% tariff on Bombardier’s planes. In a retaliation, Bombardier then accused Boeing of manipulating trade laws to stifle competition.

However, the U.S. International Trade Commission rejected the proposed tariffs in January 2018, effectively ending the dispute and allowing Bombardier’s deal with Delta to proceed without punitive measures.

This case highlights tensions with protectionism in the aerospace industry, a sector often supported by government subsidies globally.

🙏🏻 It’s not all negative… countries do work together for a common goal

♻️
The US and Europe are implementing a range of trade policies aimed at promoting clean energy and combating climate change. These include:
  • Subsidies to boost domestic production of green technology
  • Tax credits for consumers buying eco-friendly products and
  • Tariffs on goods produced with high carbon emissions

The goals are to accelerate the transition to renewable energy, reduce dependence on foreign suppliers (especially China) for critical green tech components, and encourage less polluting manufacturing methods globally.

🇺🇳
In 2017 the United Nations imposed sanctions on North Korea, specifically certain goods like diesel, gasoline and oil. This was done as an attempt to discourage North Korea from using and developing nuclear weapons.

Trade Agreements

Many countries will form trade agreements between themselves, otherwise known as a trading bloc. There are several different types of agreements countries come to, each having different rules and regulations all members must adhere to.

🤝🏻 Different types of trading agreements

These are the most common types of trading agreements.

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You might have heard of the ‘single market’ before. This is just another name for the common market!

All these agreements are similar to the one before, apart from small changes between each, however, these are important details.

European Union

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The European Union is a unique partnership between 27 European Countries, known as Member States, or EU countries.

The European Union is an example of a Custom’s Union.

These are the 27 countries that currently members of the EU.

Watch this video for some more information on the European Union ⬇️

The United Kingdom officially withdrew from the European Union at the beginning of 2020, in a move we all know as Brexit.

✅ Trade and Cooperation Agreement (TCA)

👎🏻
As touched on in the ‘Imports and Exports’ topic, after Brexit, the EU and United Kingdom have signed the Trade and Cooperation Agreement (TCA), which is similar a free trade agreement. Some of the key features of the TCA are:
  • allows for zero tariffs and quotas on all qualifying goods trade between the UK and the EU
    • ‘Qualifying goods’ are goods that are inline with the rules of origin defined in the agreement, for which there’s a length list of rules.
    • The ‘origin’ of a good is where the last significant processing was undertaken, not where it was shipped from.
  • A joint UK-EU council oversees the agreement. Disputes are settled by an independent specialist court, not EU courts.
  • If one side thinks the other is changing rules in a way that gives their businesses an unfair advantage, they can take action. this might include putting tariffs on certain products, however, before doing this they need to prove their case to an independent judge.
  • The TCA is reviewed every 5 years and can be terminated by either side with 12 months’ notice.

These videos better explains all aspect of the TCA in more detail:

ASEAN

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The Association of Southeast Asian Nations (ASEAN) is a regional organisation founded in 1967, initially comprising of five countries (top 5 countries in list) but overtime expanded to include 10 members.
  • Indonesia
  • Malaysia
  • The Philippines
  • Singapore
  • Thailand
  • Brunei
  • Cambodia
  • Laos
  • Myanmar
  • Vietnam

It was originally formed to ease regional tensions and counter communism, but since ASEAN’s focus has evolved. It now prioritises economic integration, having established a free trade agreement that has significantly boosted intra-regional trade. With a combined population of over 660 million and a total GDP of around $3 trillion as of 2020, ASEAN represents a significant economic bloc.

The group faces challenges in balancing relationships with global powers like China and the United States, while also addressing internal issues such as trade disputes and political differences among its meber

🆓 Advantages and disadvantages of trading freely

👍🏻
Advantages:
  • Competition - Free trade exposes businesses and workers to global market demands. These adjustments are critical to remaining competitive, and competition is what fuels long-term growth.
  • Growth - Free trade has been a catalyst for rapid economic growth in many countries. By leveraging their comparative advantages in exports and resources, nations have attracted foreign investment and created higher-paying local jobs. Since USMCA, (United States-Mexico-Canada Agreement), they’ve seen an increase in trade, helping these 3 countries collectively amount nearly 1/3 of global GDP, according to the Brooking Institution.
  • Efficiency and innovation - Free trade promotes competition, which shifts industries to be more productive. This environment encourages the development of new skills and technologies, ultimately benefitting the economy through increased efficiency and resilience.
  • Lower government spending - When trade agreements reduce or eliminate subsidies to local industries, governments can reallocate those funds to other areas.
  • Fairness - Free trade agreements help create a level playing field for all participants by establishing common rules. This system reduces the chances of favouritism, where certain companies or industries might get unfair advantages through political connections.
👎🏻
Disadvantages:
  • Crowding out domestic industries - When markets open up, local businesses, especially small-scale operations, may struggle to compete with larger, more efficient foreign companies. This is more common in mixed agreements (developed and developing countries) compared to agreements between countries with similar economies.
  • Less tax revenue - Many smaller countries struggle to replace revenue lost from import tariffs and fees.
  • Political considerations and negotiations - Free trade agreements often involves balancing diverse interests, including sensitive domestic sectors and national priorities, which can lead to lengthy negotiations and require significant compromises.
  • Theft of intellectual property - In markets where imports flow freely, local producers may copy and sell foreign products as knock-offs, often without legal consequences. Therefore, unless the FTA includes intellectual property laws and enforcement mechanisms, there are no protections for exporting companies.
  • Poor working conditions - Free trade can lead to multinational companies moving jobs to countries with less strict labour laws. This outsourcing can result in exploitative working conditions, particularly affecting vulnerable groups like women and children.

⛔ Advantages and disadvantages of being in a trading blocs

👍🏻
Advantages:

The advantages of being in a trading blocs are essentially the same as with free trade so you will be familiar with these, however there are a couple more specific advantages with trading blocs worth mentioning:

  • Catch-up effects - When less developed countries join trade agreements with more advanced economies, they can experience “catch-up” growth. This occurs through increased foreign investment and expanded trade opportunities. For example, Eastern European countries have significantly narrowed the income gap with Western Europe after joining the European Union.
  • Smaller countries get a greater say in global trade agreements.
👎🏻
Disadvantages:
  • Increased interdependence - Economic challenges in one country can more easily spread to others within the trading bloc. For example, a recession in one part of the Eurozone can affect all member countries.
  • Loss of sovereignty and independence - Member nations may need to adhere to collective policies that don’t always align with their individual preferences or national interests.
  • Trade diversion - Trading blocs can lead to trade diversion, where countries prioritise trade with bloc members over potentially more efficient producers outside the bloc. As a result this could reduce overall economic efficiency and limits the benefits of international specialisation.
  • Difficult to leave - Once in the trading bloc, it can be really hard for a country to leave.

Knowledge Checkpoint

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Knowledge Checkpoint: Consider two countries, X and Y, that produce both computers and cars
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Knowledge Checkpoint: Define what is meant by globalisation (2 marks).
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Knowledge Checkpoint: Explain ways in which globalisation could help reduce the UK national debt. (3 marks)
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Knowledge Checkpoint: Describe the theories of absolute and comparative advantage. (6 marks)
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Knowledge Checkpoint: Some features of the EU form part of the Brexit negotiations. Describe 3 features of these. (3 marks)
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Knowledge Checkpoint: Describe what is meant by a free trade agreement. (2 marks)
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Knowledge Checkpoint: Explain the benefits of ‘free trade’ to the UK economy. (4 marks)
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