Module 19 Global Trade Supplementary Notes PDF

Form 3 Life and Society Module 19: Global Economy: World Trade Trade and Specialisation Trading is the prerequisite of specialisation. As people specialise in producing one type of goods, they need to meet their needs for other goods by trade. Specialisation can improve productivity as people can...

Form 3 Life and Society Module 19: Global Economy: World Trade Trade and Specialisation Trading is the prerequisite of specialisation. As people specialise in producing one type of goods, they need to meet their needs for other goods by trade. Specialisation can improve productivity as people can do the jobs that they are best at, and become more skilful in the process. Specialisation also occurs across countries. Each country possesses advantages in producing certain type of goods / services. This might be due to having favourable climate (especially for agricultural products), having better technology, or having low cost of production, etc. Through trading, each country can use its resource in the most efficient way. This increases the total productivity and output, giving people more goods and services. Terminologies - Domestic trade: trade within a country or region - International trade / external trade: trade across different countries / regions - Trade in goods: visible trade - Trade in services: invisible trade - Import: shipping of foreign goods into a country / region - Export: shipping of locally produced goods to another country - Re-export: shipping of previously imported goods to another country Trends in global trade The overall trend of global trade has been rising. It increased more significantly since around year 2000. This is because of: - Lower transportation cost - Lower trade barriers - Accession of China in the World Trade Organisation Gains from trade: - More efficient use of resources - Boost economic development, create jobs, and cheaper goods - Boost investment which improves technologies and quality of products Problems arising from trading - Market monopoly or oligopoly – reduce consumers’ choices - Unemployment – due to certain industries relocated to other countries - Uneven bargaining power Why doesn’t trading always happen? Natural reasons: - Transportation cost: if the transportation cost is high, it may make offset the benefits brought by trade - Perishable products: if the products are perishable, they cannot be transported for long distance (unless with suitable technology) Policy reasons: - protect local producers from foreign competitions, thereby supporting the growth of local industry - ensure supply of key materials / products for security reasons - maintain employment level, thereby maintain social stability - protect local culture - increase government’s taxation income - retaliate against other countries’ trade protection measures Trade protection policies Policies Effects Example Tariff (i.e. tax on imports) Increase the price of U.S. imposes a 100% tariff imported products on Chinese EVs Quota Limit the amount of a China’s quota on imported specific imported product movies Subsidy Decrease the price of European Union provides products produced locally agricultural subsidies to farmers Foreign exchange control Makes it more difficult for businesses to import goods Embargo Complete ban on import or U.S. imposed embargo on oil export of certain products produced by Russia Impacts of trade protection policies on consumers - Tariff: businesses are generally able to pass some of the tariff on consumers, causing consumers to pay a higher price for imported goods - Subsidy: consumers would be benefited from a lowered price as the government provides subsidies to local producers - Reducing competition: this may slow down advancement in quality Responses to trade protection policies A country can: - Engage in high-level dialogue with the country that imposes the policy - Strengthen domestic demand to reduce reliance on export - Expand new markets to reduce the impacts - Shift the location of production - Lodge a complaint to the World Trade Organisation World Trade Organisation - a forum for member states to negotiate trade agreements - Monitor and review the trade policies of member states and ensure that they comply with the WTO’s agreed rules - Settle trade disputes between member states - Build the trading capacity of developing countries Trade in Hong Kong Hong Kong adopts a free trade policy and has generally no import and export restrictions. In 2023, Hong Kong is the world’s 10th largest trading entity in merchandise trade (i.e. goods) and 21st largest in commercial services. Hong Kong’s overall trade in goods and services is on a general increase trend but there was a decline in recent years. A vast majority (98%) of Hong Kong’s export is re-exported. This shows Hong Kong’s role as an entrepôt (i.e. a transshipment port). Challenges facing trading in Hong Kong - Development of logistical infrastructure in the Mainland means that the need for transhipment through Hong Kong is lower - Limited land in Hong Kong and higher labour costs mean that Hong Kong’s port is not as competitive as the neighboring ports - Competition of export of services from other places (e.g. Singapore) - Trade restrictions imposed on China Possible responses to the challenges - Sign more Free Trade Agreements with other economies - Develop new industries (both in goods and services) - Develop new markets - Improve logistic infrastructure (e.g. expansion of the Hong Kong International Airport)