Causes of changes in globalisation: changes in trade restrictions

Published by Patrick Mutisya · 14 days ago

IGCSE Economics 0455 – Globalisation and Trade Restrictions

International Trade and Globalisation – Globalisation and Trade Restrictions

Objective

Understand the causes of changes in globalisation, with a particular focus on how changes in trade restrictions affect the level of global integration.

1. What are Trade Restrictions?

Trade restrictions are government policies that limit the free flow of goods and services between countries. They can be classified into two broad categories:

  • Tariff barriers – taxes imposed on imported goods.

  • Non‑tariff barriers (NTBs) – measures other than tariffs that restrict trade, such as quotas, licences, standards and subsidies.

2. Types of Trade Restrictions

RestrictionDefinitionTypical Example
Import TariffA tax levied on each unit of a good imported.5 % duty on imported steel.
Export TariffA tax on goods leaving the country.Export duty on raw minerals.
QuotaA limit on the quantity of a good that can be imported or exported.Annual limit of 10 000 tonnes of wheat.
Import LicencePermission required before importing certain goods.Licence needed for pharmaceuticals.
Technical StandardsRegulations on product specifications, safety or quality.EU CE marking for electronics.
SubsidyFinancial assistance to domestic producers, making their goods cheaper abroad.Agricultural price support.

3. Causes of Changes in Trade Restrictions

Several forces can lead governments to alter the level of trade restrictions, thereby influencing globalisation:

  1. Political Ideology

    • Shift from protectionism to free‑trade policies (e.g., adoption of neoliberal reforms).

    • Nationalist or populist governments may re‑impose barriers to protect domestic jobs.

  2. Economic Objectives

    • Promoting export‑led growth → reduction of export duties.

    • Protecting infant industries → temporary tariffs or quotas.

    • Managing balance of payments → import controls.

  3. International Agreements

    • Membership in the World Trade Organization (WTO) obliges members to lower tariffs.

    • Regional trade blocs (EU, NAFTA, ASEAN) create common external tariffs and reduce internal barriers.

  4. Technological Change

    • Advances in transport and communication lower transaction costs, encouraging liberalisation.

    • Digital trade raises new regulatory issues (data localisation, e‑commerce taxes).

  5. Domestic Economic Conditions

    • Recession may prompt governments to protect domestic producers.

    • Booming economy may lead to deregulation to meet rising demand for imports.

  6. External Shocks

    • Oil price spikes, pandemics or geopolitical conflicts can trigger temporary import bans or export controls.

    • Supply‑chain disruptions may lead to strategic stock‑piling policies.

4. Impact of Changing Trade Restrictions on Globalisation

When trade restrictions are altered, the following effects on globalisation are observed:

  • Reduction in tariffs or NTBs → lower costs of imported goods, increased consumer choice, and greater market integration.

  • Increase in tariffs or NTBs → higher prices, reduced import volumes, and a possible retreat from global supply chains.

  • Trade liberalisation often leads to:

    • Growth in foreign direct investment (FDI).

    • Expansion of multinational enterprises.

    • Greater technology transfer and diffusion of innovation.

  • Protectionist measures can:

    • Encourage domestic production in the short term.

    • Trigger retaliatory actions from trading partners (trade wars).

    • Distort resource allocation and reduce overall welfare.

5. Illustrative Example – The 2008 Global Financial Crisis

During the crisis many countries introduced temporary protectionist measures:

  • Export bans on agricultural products to safeguard domestic food security.

  • Increased tariffs on luxury goods to raise revenue.

  • Resulting short‑term decline in global trade volumes, followed by a rapid reversal as economies recovered and WTO rules were re‑asserted.

6. Evaluating the Role of Trade Restrictions

When assessing whether a change in trade restrictions will promote or hinder globalisation, consider the following criteria:

  1. Economic efficiency – do the measures improve or reduce total welfare?

  2. Distributional effects – who gains and who loses?

  3. Political feasibility – is there public support or opposition?

  4. International obligations – does the change comply with WTO or regional agreements?

  5. Long‑run sustainability – will the policy foster innovation and competitiveness?

Suggested diagram: Flowchart showing how a change in trade restrictions (e.g., tariff reduction) leads to lower import prices → increased import volume → greater market integration → higher globalisation.

7. Summary Checklist for Exams

  • Define tariffs and non‑tariff barriers.

  • List at least three causes of changes in trade restrictions.

  • Explain how a reduction in tariffs can increase globalisation (use a diagram if possible).

  • Discuss one advantage and one disadvantage of protectionist policies.

  • Give a real‑world example of a recent change in trade policy and its impact on global trade.