Effects of changes in globalisation on international trade

International Trade and Globalisation – Globalisation and Trade Restrictions

Learning Objective

Explain how changes in the level of globalisation affect the volume and pattern of international trade.

Key Concepts

• Globalisation: The increasing integration of world economies through the growth of international trade, investment, and information technology.
• Trade Restrictions: Government policies that limit the free flow of goods and services across borders.
• Trade Liberalisation: The removal or reduction of trade barriers to encourage more open markets.

Types of Trade Restrictions

How Globalisation Influences Trade Restrictions

1. Technological Advances

   • Reduced communication and transport costs make it cheaper to trade.
   • Governments may feel pressure to lower tariffs to stay competitive.

2. Economic Integration

   • Regional blocs (e.g., EU, NAFTA) negotiate collective reductions in barriers.
   • Member states often adopt common external tariffs, limiting individual policy freedom.

3. Political Pressures

   • Domestic industries may lobby for protection when faced with cheap imports.
   • Public opinion can sway governments to impose or retain restrictions.

4. Global Supply Chains

   • Complex production networks increase interdependence, making outright bans costly.
   • Countries may use targeted tariffs rather than broad restrictions.

Effects of Changes in Globalisation on International Trade

When globalisation intensifies (e.g., lower transport costs, greater digital connectivity), the following effects are typically observed:

• Increase in Trade \cdot olume – The quantity of goods and services exchanged rises.
• Shift in Trade Patterns – Countries specialise according to comparative advantage; new markets emerge.
• Pressure on Trade Restrictions – Governments may reduce tariffs and quotas to attract investment.
• Greater Competition – Domestic firms face more foreign competitors, prompting efficiency gains.
• Potential for Trade Disputes – Rapid changes can lead to disagreements over market access.

Conversely, a slowdown or reversal of globalisation (e.g., rising protectionist sentiment, supply‑chain disruptions) can lead to:

• Reduced Trade \cdot olume – Higher costs and barriers discourage cross‑border exchange.
• Re‑industrialisation – Countries may attempt to bring production back home.
• Higher Consumer Prices – Tariffs and reduced competition raise the cost of imported goods.
• Trade Diversion – Importers seek alternative suppliers, possibly shifting trade away from traditional partners.

Illustrative Economic Model

The impact of a tariff on import quantity can be shown using the standard import demand equation:

\$\$

Q{M}=f(P{W}+t)

\$\$

where:

• \$Q_{M}\$ = quantity of imports
• \$P_{W}\$ = world price of the good
• \$t\$ = tariff per unit

As \$t\$ rises (a common response to reduced globalisation), \$Q_{M}\$ falls, illustrating the inverse relationship between trade barriers and import volume.

Case Study Summary (Suggested)

Examine the United Kingdom’s decision to leave the EU (Brexit) and its impact on trade restrictions:

• Re‑introduction of customs checks and tariffs on some goods.
• Short‑term disruption to supply chains, leading to higher costs for manufacturers.
• Long‑term negotiations aimed at new trade agreements, reflecting the balance between sovereignty and global market access.

Key Take‑aways

• Globalisation reduces the relative cost of trade, encouraging governments to lower trade barriers.
• Trade restrictions are tools that can be adjusted in response to changes in globalisation, affecting both the volume and pattern of trade.
• Understanding the interaction between globalisation forces and policy choices is essential for analysing real‑world economic outcomes.