The Political Environment: Contemporary Issues (AQA A Level Business): Revision Note

Trade agreements

• A trade agreement is a formal arrangement between two or more countries that sets out the rules for trading with each other

  • Agreements usually focus on reducing or removing barriers such as tariffs, quotas or other restrictions

• Agreements can be between just two countries (bilateral) or between several countries at once (multilateral)

  • They can involve joining an existing trade bloc, such as the European Union (EU), or negotiating a new deal directly with another country

Benefits of trade agreements for business

• Trade agreements reduce or remove tariffs

  • This lowers the cost of importing materials or exporting finished goods

• They open up new markets

  • This gives businesses access to a much bigger pool of potential customers

Example

Under the 2025 UK-India trade deal, 99% of UK goods were given duty-free access to India's market of 1.4 billion people.

Both governments hoped it would double trade between the two countries to around $120 billion by 2030.

• They can simplify customs procedures

  • This reduces delays and paperwork when moving goods across borders

• They encourage competition

  • This can drive domestic businesses to become more efficient and innovative

Example

Since Australian beef and lamb gained easier access to the UK market under a 2023 trade deal, UK farmers have faced pressure to compete more on quality rather than relying on lower foreign competition to protect their prices.

Drawbacks of trade agreements for business

• Trade agreements often increase competition from foreign businesses

  • This can be a real threat to domestic firms that struggle to compete on price

• Some industries or jobs can be lost if cheaper imports replace goods that used to be made at home

Example

Around 7,000 UK steel jobs were lost in 2016 as a flood of cheap Chinese steel imports pushed down prices.

Tata Steel alone cut 1,200 jobs, blaming foreign competition directly.

• Businesses may need to quickly adapt to new rules, standards or paperwork

  • This takes time and money, which may be especially challenging for smaller businesses

Example

Small UK exporters were hit hardest by new customs paperwork introduced after Brexit.

Unlike larger firms, they often cannot spread the extra compliance costs across a high volume of trade or afford dedicated staff to handle it.

• Some businesses may lack the resources to take advantage of new export opportunities

Impact on functional areas

Protectionism

• Protectionism means government policies designed to shield domestic businesses from foreign competition, usually by restricting imports

Forms of protectionism

• Tariffs

  • Taxes placed on imported goods, making them more expensive compared with domestically made alternatives

• Quotas

  • Limits on the quantity of a particular good that can be imported into a country over a set period

• Trade regulations

  • Rules and standards placed on imported goods, such as safety or quality standards, which can make it harder or more costly for foreign businesses to sell into a market

Benefits of protectionism for business

• Protects domestic businesses and jobs from being undercut by cheaper foreign competition

• Can help a new or developing industry grow and establish itself before facing full international competition

• Can raise government revenue through tariffs

  • This tax revenue is sometimes used to support domestic industries

• Can protect a country's self-sufficiency in important industries

  • Such as food, energy or steel

Drawbacks of protectionism for business

• Increases costs for businesses that rely on imported materials or components subject to tariffs

• Can lead to other countries retaliating with their own tariffs,

  • This can harm businesses that rely on exporting

• Reduces consumer choice

  • This can push prices up as domestic producers face less competitive pressure

• Can reduce a business's access to international markets if trade partners respond with their own restrictions

Impact on functional areas