Expansion of Trading Blocs
- A trading bloc is a group of countries that form an agreement to reduce or eliminate protectionist measures between each other
- Joining a trading bloc is a key method of increasing trade liberalisation and leads to trade creation
- Trade creation means that businesses are able to enter new markets which can lead to an increase in sales volume and sales revenue
- Trade creation means that businesses are able to enter new markets which can lead to an increase in sales volume and sales revenue
- Three of the largest trading blocs include The European Union (EU), The Association of Southeast Asian Nations (ASEAN), and USMCA (United States, Mexico and Canada, formerly known as NAFTA)
The European Union (EU)
- The European Union is an economic union, originally formed in 1993
- Countries in Europe can apply to join the union and as of February 2023, there are 28 countries in the union
- Being a member of the EU includes free movement of goods and people
- Countries within the union have no trade restrictions between themselves
- Countries within the union have common external barriers (e.g. tariffs) to countries outside of the union
- The UK voted to leave the EU in 2016, and officially left in 2020
Association of Southeast Asian Nations (ASEAN)
- ASEAN was originally formed in 1967
- In February 2023, ten countries were part of this free trade area
- The ASEAN free trade area is less integrated than the European Union as it does not allow for the free movement of people between the countries, whereas the European Union does
- A free trade area aims to achieve free flow of goods in the region (eliminating trade barriers)
- Free trade areas lower business costs, increase market size and help businesses to generate economies of scale
United State, Mexico and Canada (USMCA)
- USMCA is the trade bloc that superseded NAFTA, which was established in 1994 between Canada, Mexico and the USA. The aim was to promote free trade between these countries
- In 2018, the terms of the agreement were renegotiated and it was renamed.
- Many USA businesses relocated their manufacturing to Mexico as goods could be produced there much more cost effectively due to the lower wages paid to Mexican workers
- The products could then be imported back into the USA without and tariffs being incurred
- Mexico benefitted from this agreement as it helped to create many new industries and jobs within the country
- However, most of the benefits occurred in the north of the country close to the USA border