Assess the extent to which trade blocs are beneficial to the global economy.

(20 marks)
Consider the perspective of those in and out of trade blocs.

A global economy is an economy between the most influential countries that drives
the worldwide economic environment. A trade bloc is a group of different countries
that join together to formulate agreements to promote trade between them. They
would remove tariffs and other trade barriers to their partners. An example of a
trade bloc is the EU, where a high percentage of the 27 countries use the Euro and
labour can move freely between the countries.

Those who are members of trade blocs (such as the EU) benefit from numerous
economic advantages such as free trade and more levels of investment. Free trade
allows a country to increase its output due to reduced economic barriers, which will
lead to a decrease in average cost per unit which is also called economies of scale.
Adding on, for the countries in the trade bloc it allows for specialisation so certain
countries can produce a narrower range of goods to increase efficiency and overall
costs. This results in the global economy getting boosted due to developing countries
who are involved getting fair trade and investment.

However, due to trade blocs, many countries involved don’t manufacture their own
products and heavily rely on other countries for their goods and services. This is very
dangerous and could heavily impact the economy of the country if there are any
conflicts or wars that they may face as they will have a reduced number of products
that they need and they wouldn’t be able to export any produce. This leads to a
collapse in the trade bloc and may alter the global economy if the country is relied on
by several HICs.

Trade blocs overall result in an increase in FDI, this is extremely beneficial for the LICs
and NICs who are part of the bloc, and it will further lead to rapid economic growth,
for example, NICs such as China which in 2019 received around $190 billion from FDI
alone. Additionally, due to the removal of tariffs and other economic barriers, the
import costs are less which leads to an increase in demand due to customers wanting
to buy cheaper goods and services. Although the increase in demand may seem
beneficial, this encourages countries to manufacture and produce their goods
unethically and ultimately damage the environment, due to this, every country needs
to invest money into helping save the deteriorating environment which leads to less
profit globally, an example of this is air pollution costs around 6.1% of global GDP per
year.
Trade blocs may be beneficial to those participating but for those excluded, it is
extremely damaging to their economic growth, for example, Burundi doesn’t appeal
to many countries as its landlocked, suffers major droughts, and has continuous
cycles of violence and war. Due to the lack and cost of imports (due to tariffs being
included) and investment, Burundi’s GDP per capita is only around $200 in
comparison to the USA’s $65 500. This leads to millions of people living a poor
quality of life. Although this doesn’t alter the global economy substantially, the
increase in costs of imports for non-members of trade blocs makes it even more
impossible for LICs to purchase a sufficient number of goods and services.

In summation, I believe that trade blocs are beneficial to the global economy to a
very high extent as it allows more trade and free movement of capital and labour
between countries such as NAFTA and the EU. Additionally, it has resulted in rapid
economic growth for LICs participating due to FDI and the removal of tariffs when
importing goods.