Effects of changes in globalisation on competition

🌍 Globalisation and Trade Restrictions

What is Globalisation?

Imagine the world as a giant shopping mall where every country is a shop. Products, ideas, and money flow freely between these shops, making everything cheaper and more diverse for shoppers (us!). Globalisation is the process that makes this mall bigger, faster, and more connected.

Trade Restrictions: The “Bouncer” at the Mall Entrance

When a country decides to control what comes in or out, it’s like a bouncer at the mall’s entrance. Common restrictions include:

  • 🚢 Tariffs – a tax on imported goods.

  • 📦 Quotas – a limit on how many units can be imported.

  • 💰 Subsidies – government payments to domestic producers.

  • 🛑 Non‑tariff barriers – rules, standards, or licensing that make imports harder.

Effects on Competition

When global trade changes, the competition landscape shifts like a game of musical chairs:

  1. 🔄 Price changes – Tariffs usually raise prices for consumers but can lower prices for domestic producers.

  2. 📈 Output changes – Domestic firms may produce more if they face less foreign competition.

  3. ⚖️ Consumer welfare – Higher prices mean less purchasing power, but protection can keep jobs.

  4. 📊 Market structure – Fewer foreign competitors can lead to monopolistic or oligopolistic markets.

💡 Exam Tip: When asked how a tariff affects competition, remember the four outcomes: price, output, consumer welfare, and market structure. Use the acronym P‑O‑C‑M to keep them in order.

Case Study: Steel Tariffs in Country X

Country X imposed a 25% tariff on imported steel to protect its domestic steel industry.

YearImports (million tonnes)Domestic Production (million tonnes)Price Index
201812080100
20199095110
202070110120

🔍 Observation: Imports fell sharply after the tariff, domestic production rose, and the price index increased, indicating higher consumer costs but stronger domestic industry.

Mathematics in Trade: Elasticity of Demand

Elasticity tells us how much the quantity demanded changes when the price changes.

\$E = \frac{\% \Delta Q}{\% \Delta P}\$

If a tariff raises the price by 10% and quantity demanded falls by 20%, then:

\$E = \frac{-20\%}{10\%} = -2\$

A value of -2 means demand is elastic – consumers are very sensitive to price changes.

📚 Exam Tip: When calculating elasticity, remember to use percentages and keep the sign (negative for normal goods). If the absolute value is >1, demand is elastic; if <1, it’s inelastic.

Analogy: The “Global Marketplace” as a Sports League

Think of each country as a team in a sports league. When trade restrictions are lifted, teams can trade players (goods) freely, leading to stronger teams and better games (higher consumer choice). When a team imposes a restriction, it keeps its players but may lose the chance to acquire new talent, potentially weakening the overall league.

Key Take‑Away Points

  • Globalisation increases competition, lowering prices and expanding choices.

  • Trade restrictions can protect domestic industries but often raise consumer prices.

  • Tariffs affect price, output, consumer welfare, and market structure.

  • Elasticity helps predict how quantity demanded reacts to price changes.

  • Use the acronym P‑O‑C‑M to remember the four main effects of a tariff.

Final Exam Preparation Checklist

  1. Review definitions of tariffs, quotas, subsidies, and non‑tariff barriers.

  2. Practice calculating elasticity with sample data.

  3. Draw a simple diagram showing how a tariff shifts the supply curve.

  4. Prepare short notes on the four effects of a tariff (price, output, consumer welfare, market structure).

  5. Use past exam questions to test your understanding of how globalisation affects competition.