Global Interdependence – CIE International A-Level Geography Notes by William Botham
13.1 Trade Flows and trading patterns
Visible trade – physical goods which are traded between nations e.g. agricultural goods, extracted minerals,
fossil fuels, manufactured goods, electronics etc.
Invisible trade – services which are traded between nations e.g. financial services, insurance, education,
tourism, communications construction, licences, royalties etc.
Trade balance – the difference between the monetary value of the exports and imports of a country
Trade surplus – positive trade balance; exports are worth more than imports
Trade deficit – negative trade balance; imports are worth more than exports
Trade agreements – deals between governments to control the trade between the countries, usually by
licenses, tariffs and quotas
Tariffs – a tax on imports or exports
Quota – a limit on the quantity of a commodity or service that can be imported
Primary product dependent – obtaining foreign currency by exporting a small range of primary products,
often at low prices compared with the price of manufactured goods and services
Factors that can affect the balance of trade:
- Cost of production – land, labour, capital and taxes
- Resource endowment
- Locational advantage
- Historical factors e.g. colonial ties
- Currency exchange rates
- Trade agreements, and tariffs and quota barriers
- Environmental, health and safety standards
- Availability of foreign exchange to pay for imports
Trading pattern trends
- North-South divide
- North America and Europe are net exporters of invisible trade
- Low trade in Africa – primary trade of primary goods in most of Africa
- Oil rich nations such as Russia and Saudi have high levels of oil, coal and gas trade
- Asia – largest manufacturer of products
- USA, China, Japan, UK, France, Germany – value of trade >$1 trillion
- South and central America has the most even divide of visible exports with a third in each category;
manufactured goods, fuels and agriculture
- Africa – mainly fossil fuels and mining – region with largest trade in communications e.g. Nigeria
- North America – largest trader of royalties and licenses
- Value of visibles greater than invisibles (excluding tourism)
Advantages and disadvantages of current trading patterns
- HICs will try to depress primary good prices in LICs
- HICs – protectionist measures and subsidies to protect domestic production and tariffs and quotas to
limit imports
- TNCs control LIC trade – profits repatriated to HICs – account for 65% of manufacturing
HICs
Advantages
- Socio-economic – cheap imports of food and raw materials and export of manufactured goods should
allow for a trade surplus
- Political – exert pressure on LICs/MICs for cheap goods and services
- Environmental – limited mining and deforestation – protect environment
Disadvantages
- Socio-economic – high transport costs
- Environmental – manufacturing causes pollution
,Global Interdependence – CIE International A-Level Geography Notes by William Botham
LICs
Advantages
- Socio-economic – raw materials easily sold – provides unskilled work
- Political – may be able to obtain overseas aid and investment
Disadvantages
- Socio-economic – limited range of exports and expensive imports leading to trade deficit
- Environmental – problems from mining, deforesting and overgrazing
- Political instability and corruption
- Reliant on one type of export e.g. oil, diamonds or cocoa
Factors affecting global trade
Resource endowment
- Countries with large deposits of natural resources such as fossil fuels tend to have a trade surplus as
they can export large amounts of fossil fuels
- Food commodities, partly controlled by climatic factors, can allow for favourable trade
- Large amounts of exportable materials can allow a country to diversify their economy and make it
more balances e.g. South Africa and Brazil
Locational advantage
- Closeness to the market or area of demand e.g. tourist destinations in the Mediterranean have high
levels of demand due to their closeness to large populations in colder northern countries such as
Germany and the UK
- Ports with a large hinterland and transport communications e.g. Rotterdam
- Strategic position on trade routes e.g. Singapore is located close to shipping routes in South East Asia
Historical factors
- Before the independence of former colonies between 1945 and 1970 trade was dominated by a flow
of primary goods from the colonies and manufactured goods from the colonial powers – exploitative
relationship that hinders development and could be a reason why Africa is highly undeveloped
- Colonial links, though reduced In importance still exist e.g. links between the UK and the
commonwealth countries and France and Françafrique (former African French colonies)
Trade agreements and free trade
- Free trade exists with import or export tariffs
- Countries use tariffs and quotas to protect their domestic economies
- Trade blocs have led to growing economic regionalism but they create tension between member and
non-member states in a region e.g. European countries that aren’t a member of the EU have
disadvantaged trading deals and thus may develop slowly
- EU farmers benefit from CAP so their costs of production can be lower than in other nations thus they
can afford to sell their produce for less favouring their trade
Trade bloc – a group of countries who have joined together to stimulate trade between them, often to the
disadvantage of non-member countries e.g. EU
Types of trade blocs
1. Free trade area – no tariffs or quotas between members e.g. NAFTA
2. Customs union – common external tariff on non-members e.g. Mercosur (South America)
3. Common market – free trade of goods and services and free movement of labour and capital
4. Economic union – common economic policies e.g. EU
,Global Interdependence – CIE International A-Level Geography Notes by William Botham
Advantages of trade blocs
- FDI – larger market attracts further investment by TNCs as the costs of production is low in that area
e.g. any production in the EU can be sold without a tariff to any member states
- Increased investment stimulates job opportunities and rising incomes
- Competition – economies of scale and comparative advantage between member states – increases
efficiency
- Protectionism – protect domestic industries from cheaper imports
Disadvantages of trade blocs
- Regionalism - to reduce costs and maximize profits, some areas lose out and unemployment
increases
- Concessions – benefits may not be seen in some member states instead benefitting the whole bloc
- Loss of sovereignty – countries lose their ability to make their own decisions
- Interdependence – one country is heavily affected by others in the bloc
- Inefficiency – inefficient manufacturing and production is being protected e.g. CAP or steel
production
Issues of NAFTA (North American Free Trade Agreement)
- Public concerns about environmental imp[act regarding different regulations in the different
members
- Increased mobility of labour
- Loss of jobs in the USA to maquiladoras – Mexican factories that take in imported raw materials and
produce goods for export close to the US-Mexican border
- Mexican agriculture growth and increased exports
- Mexico – second largest importer of US agriculture products
- USA – increased trade deficit while Canada and Mexico have had trade surpluses
Changes in the global market
- Increase in FDI and rise in TNCs have changed trading patterns globally in favour of HICs
- Expansion of China, the BRICs and the MINT countries have led to rising volume of trade
Trading positions of different countries
- HICs – import a lot of raw materials, export finished products after adding value and have large
ecological footprint
- LICs – may be primary product dependent, often have little trade in comparison to HICs and MICs
- NICs – high-growth economy, growing trade and low manufacturing costs
- Japan and Germany – saving surplus , strong manufacturing base
- USA – lower saving rate, trade deficit with Asian Tigers and China, trade surplus with Australia and a
major oil importer
- Saudi Arabia, UAE, Kuwait, Qatar, Norway, Nigeria – oil exporting countries with relatively small
populations (except Nigeria)
Trade liberalisation – increased freedom of trade through the removal of trade restrictions
Senegal and the world bank:
- Specialisation maximises productivity – comparative advantage
- World bank invested in infrastructure
- Other nations increased production of ground nuts as the industry was thriving in the 1980s – foreign
exchange
- Increased production in the market led to falling prices
- State programs to help fund equipment and seeds for farmers fell as privatisation and cuts in public
spending increased
- Debt increased – one of the worlds most indebted nations
- Overly dependent on one crop
, Global Interdependence – CIE International A-Level Geography Notes by William Botham
The Cashew – Mozambique and the IMF
- In the 1990s there was a growing industry with 10,000 employed in the processing industry
- A lot of the raw nuts were being sold – cheaper than processed nuts
- Growers sold nuts to local processing plants as there was a tariff on unprocessed nut exports
- IMF lends money but tariff had to be removed - free trade
- Rice of nuts were too high for local factories to process them – 9,000 became unemployed
- Lack of competition in market – dominated by two export companies and the price for the nuts
decreased to levels before the 1990s
Brazil Nut – Bolivia, the EU and the WTO
- 75% of Brazil Nuts come from Bolivia – example of sustainable agriculture
- 1990’s – NGO investment allowed expansion of industry
- In 1999 changes in the EU – lowered acceptable level of carcinogen from the globally acceptable 20
ppb to 4 ppb – method of collection, from the rainforest floor, meant that the ppb was higher than on
plantations meaning exports fell as a large amount of the nuts didn’t meet this new rule
- EU didn’t have any scientific evidence for the lowering of the acceptable level only stating that it was
a precaution
Peanuts – USA
- One of the most protected cash crops – USA consumers over $1 billion per year
- Industry heavily subsidised thus can sell nuts for a lower price
- There are over 50,000 peanut plants adding $4 billion to the US economy annually
- Had funds so didn’t need loans, had a large domestic demand and thus wasn’t dependent on other
nations’ demand
World Trade Organization (WTO)
- Intergovernmental organisation that regulates international trade, with around 160 member states
- In 1947 23 nations agreed to reduce tariffs on each other’s exports under the General Agreement on
Tariffs and Trade (GATT)
- WTO created in 1995 – unlike GATT which was a loosely organised organization, the WTO was set up
as a permanent organization with far greater powers to arbitrate trade disputes
- Average tariffs are a tenth of 1947 rates – falling from 40% to <4% of product value
- In principal every member has equal power and say in trade but in practise HICs shut out LICs from
key talks and obtain favourable trading agreements
The WTO promotes free trade through the following measures:
- Providing rules for trade in goods, services, inventions and intellectual property. Trade agreements
negotiated by member trading nations which bind governments to keep their trade policies within the
agreed limits
- Promotes trade by reducing tariffs and other trade barriers to the mutual advantage of members
- Members can settle trade disputes
WTO Principles
- Non-discrimination – country can’t discriminate its trading partners or between its domestic
product/service and foreign product/service
- Openness – reduction or removal of tariffs, bans and quotas
- Stability, predictability and transparency – foreign companies, investors and governments should be
confident that trade barriers won’t be raided arbitrarily – encourages investment, job creation,
consumer choice and lower prices. WTO requires trade policies to be transparent
- Promote competition – aims to discourage ‘unfair’ practices such as export subsidies and dumping
products below normal value to gain market share
- More benefits to LICs – longer time periods to implement agreements and commitments, measures
to increase their trading opportunities and support to help them build their trade capacity etc.
- Protection of the environment
13.1 Trade Flows and trading patterns
Visible trade – physical goods which are traded between nations e.g. agricultural goods, extracted minerals,
fossil fuels, manufactured goods, electronics etc.
Invisible trade – services which are traded between nations e.g. financial services, insurance, education,
tourism, communications construction, licences, royalties etc.
Trade balance – the difference between the monetary value of the exports and imports of a country
Trade surplus – positive trade balance; exports are worth more than imports
Trade deficit – negative trade balance; imports are worth more than exports
Trade agreements – deals between governments to control the trade between the countries, usually by
licenses, tariffs and quotas
Tariffs – a tax on imports or exports
Quota – a limit on the quantity of a commodity or service that can be imported
Primary product dependent – obtaining foreign currency by exporting a small range of primary products,
often at low prices compared with the price of manufactured goods and services
Factors that can affect the balance of trade:
- Cost of production – land, labour, capital and taxes
- Resource endowment
- Locational advantage
- Historical factors e.g. colonial ties
- Currency exchange rates
- Trade agreements, and tariffs and quota barriers
- Environmental, health and safety standards
- Availability of foreign exchange to pay for imports
Trading pattern trends
- North-South divide
- North America and Europe are net exporters of invisible trade
- Low trade in Africa – primary trade of primary goods in most of Africa
- Oil rich nations such as Russia and Saudi have high levels of oil, coal and gas trade
- Asia – largest manufacturer of products
- USA, China, Japan, UK, France, Germany – value of trade >$1 trillion
- South and central America has the most even divide of visible exports with a third in each category;
manufactured goods, fuels and agriculture
- Africa – mainly fossil fuels and mining – region with largest trade in communications e.g. Nigeria
- North America – largest trader of royalties and licenses
- Value of visibles greater than invisibles (excluding tourism)
Advantages and disadvantages of current trading patterns
- HICs will try to depress primary good prices in LICs
- HICs – protectionist measures and subsidies to protect domestic production and tariffs and quotas to
limit imports
- TNCs control LIC trade – profits repatriated to HICs – account for 65% of manufacturing
HICs
Advantages
- Socio-economic – cheap imports of food and raw materials and export of manufactured goods should
allow for a trade surplus
- Political – exert pressure on LICs/MICs for cheap goods and services
- Environmental – limited mining and deforestation – protect environment
Disadvantages
- Socio-economic – high transport costs
- Environmental – manufacturing causes pollution
,Global Interdependence – CIE International A-Level Geography Notes by William Botham
LICs
Advantages
- Socio-economic – raw materials easily sold – provides unskilled work
- Political – may be able to obtain overseas aid and investment
Disadvantages
- Socio-economic – limited range of exports and expensive imports leading to trade deficit
- Environmental – problems from mining, deforesting and overgrazing
- Political instability and corruption
- Reliant on one type of export e.g. oil, diamonds or cocoa
Factors affecting global trade
Resource endowment
- Countries with large deposits of natural resources such as fossil fuels tend to have a trade surplus as
they can export large amounts of fossil fuels
- Food commodities, partly controlled by climatic factors, can allow for favourable trade
- Large amounts of exportable materials can allow a country to diversify their economy and make it
more balances e.g. South Africa and Brazil
Locational advantage
- Closeness to the market or area of demand e.g. tourist destinations in the Mediterranean have high
levels of demand due to their closeness to large populations in colder northern countries such as
Germany and the UK
- Ports with a large hinterland and transport communications e.g. Rotterdam
- Strategic position on trade routes e.g. Singapore is located close to shipping routes in South East Asia
Historical factors
- Before the independence of former colonies between 1945 and 1970 trade was dominated by a flow
of primary goods from the colonies and manufactured goods from the colonial powers – exploitative
relationship that hinders development and could be a reason why Africa is highly undeveloped
- Colonial links, though reduced In importance still exist e.g. links between the UK and the
commonwealth countries and France and Françafrique (former African French colonies)
Trade agreements and free trade
- Free trade exists with import or export tariffs
- Countries use tariffs and quotas to protect their domestic economies
- Trade blocs have led to growing economic regionalism but they create tension between member and
non-member states in a region e.g. European countries that aren’t a member of the EU have
disadvantaged trading deals and thus may develop slowly
- EU farmers benefit from CAP so their costs of production can be lower than in other nations thus they
can afford to sell their produce for less favouring their trade
Trade bloc – a group of countries who have joined together to stimulate trade between them, often to the
disadvantage of non-member countries e.g. EU
Types of trade blocs
1. Free trade area – no tariffs or quotas between members e.g. NAFTA
2. Customs union – common external tariff on non-members e.g. Mercosur (South America)
3. Common market – free trade of goods and services and free movement of labour and capital
4. Economic union – common economic policies e.g. EU
,Global Interdependence – CIE International A-Level Geography Notes by William Botham
Advantages of trade blocs
- FDI – larger market attracts further investment by TNCs as the costs of production is low in that area
e.g. any production in the EU can be sold without a tariff to any member states
- Increased investment stimulates job opportunities and rising incomes
- Competition – economies of scale and comparative advantage between member states – increases
efficiency
- Protectionism – protect domestic industries from cheaper imports
Disadvantages of trade blocs
- Regionalism - to reduce costs and maximize profits, some areas lose out and unemployment
increases
- Concessions – benefits may not be seen in some member states instead benefitting the whole bloc
- Loss of sovereignty – countries lose their ability to make their own decisions
- Interdependence – one country is heavily affected by others in the bloc
- Inefficiency – inefficient manufacturing and production is being protected e.g. CAP or steel
production
Issues of NAFTA (North American Free Trade Agreement)
- Public concerns about environmental imp[act regarding different regulations in the different
members
- Increased mobility of labour
- Loss of jobs in the USA to maquiladoras – Mexican factories that take in imported raw materials and
produce goods for export close to the US-Mexican border
- Mexican agriculture growth and increased exports
- Mexico – second largest importer of US agriculture products
- USA – increased trade deficit while Canada and Mexico have had trade surpluses
Changes in the global market
- Increase in FDI and rise in TNCs have changed trading patterns globally in favour of HICs
- Expansion of China, the BRICs and the MINT countries have led to rising volume of trade
Trading positions of different countries
- HICs – import a lot of raw materials, export finished products after adding value and have large
ecological footprint
- LICs – may be primary product dependent, often have little trade in comparison to HICs and MICs
- NICs – high-growth economy, growing trade and low manufacturing costs
- Japan and Germany – saving surplus , strong manufacturing base
- USA – lower saving rate, trade deficit with Asian Tigers and China, trade surplus with Australia and a
major oil importer
- Saudi Arabia, UAE, Kuwait, Qatar, Norway, Nigeria – oil exporting countries with relatively small
populations (except Nigeria)
Trade liberalisation – increased freedom of trade through the removal of trade restrictions
Senegal and the world bank:
- Specialisation maximises productivity – comparative advantage
- World bank invested in infrastructure
- Other nations increased production of ground nuts as the industry was thriving in the 1980s – foreign
exchange
- Increased production in the market led to falling prices
- State programs to help fund equipment and seeds for farmers fell as privatisation and cuts in public
spending increased
- Debt increased – one of the worlds most indebted nations
- Overly dependent on one crop
, Global Interdependence – CIE International A-Level Geography Notes by William Botham
The Cashew – Mozambique and the IMF
- In the 1990s there was a growing industry with 10,000 employed in the processing industry
- A lot of the raw nuts were being sold – cheaper than processed nuts
- Growers sold nuts to local processing plants as there was a tariff on unprocessed nut exports
- IMF lends money but tariff had to be removed - free trade
- Rice of nuts were too high for local factories to process them – 9,000 became unemployed
- Lack of competition in market – dominated by two export companies and the price for the nuts
decreased to levels before the 1990s
Brazil Nut – Bolivia, the EU and the WTO
- 75% of Brazil Nuts come from Bolivia – example of sustainable agriculture
- 1990’s – NGO investment allowed expansion of industry
- In 1999 changes in the EU – lowered acceptable level of carcinogen from the globally acceptable 20
ppb to 4 ppb – method of collection, from the rainforest floor, meant that the ppb was higher than on
plantations meaning exports fell as a large amount of the nuts didn’t meet this new rule
- EU didn’t have any scientific evidence for the lowering of the acceptable level only stating that it was
a precaution
Peanuts – USA
- One of the most protected cash crops – USA consumers over $1 billion per year
- Industry heavily subsidised thus can sell nuts for a lower price
- There are over 50,000 peanut plants adding $4 billion to the US economy annually
- Had funds so didn’t need loans, had a large domestic demand and thus wasn’t dependent on other
nations’ demand
World Trade Organization (WTO)
- Intergovernmental organisation that regulates international trade, with around 160 member states
- In 1947 23 nations agreed to reduce tariffs on each other’s exports under the General Agreement on
Tariffs and Trade (GATT)
- WTO created in 1995 – unlike GATT which was a loosely organised organization, the WTO was set up
as a permanent organization with far greater powers to arbitrate trade disputes
- Average tariffs are a tenth of 1947 rates – falling from 40% to <4% of product value
- In principal every member has equal power and say in trade but in practise HICs shut out LICs from
key talks and obtain favourable trading agreements
The WTO promotes free trade through the following measures:
- Providing rules for trade in goods, services, inventions and intellectual property. Trade agreements
negotiated by member trading nations which bind governments to keep their trade policies within the
agreed limits
- Promotes trade by reducing tariffs and other trade barriers to the mutual advantage of members
- Members can settle trade disputes
WTO Principles
- Non-discrimination – country can’t discriminate its trading partners or between its domestic
product/service and foreign product/service
- Openness – reduction or removal of tariffs, bans and quotas
- Stability, predictability and transparency – foreign companies, investors and governments should be
confident that trade barriers won’t be raided arbitrarily – encourages investment, job creation,
consumer choice and lower prices. WTO requires trade policies to be transparent
- Promote competition – aims to discourage ‘unfair’ practices such as export subsidies and dumping
products below normal value to gain market share
- More benefits to LICs – longer time periods to implement agreements and commitments, measures
to increase their trading opportunities and support to help them build their trade capacity etc.
- Protection of the environment
