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The Costs and Benefits of Trade
Like most things in life, trading can bring many benefits to our lives. For some people, however, trade might bring some disadvantages. This section will explore some of these advantages and disadvantages.
The Benefits of Trade:
These can be summarised as:
- Access to a wider variety of goods and services
- Access to goods that may be much better quality or cheaper - or both!
- Trade provides the chances for business to access far bigger markets - more sales mean opportunities for expansion and this can create more jobs
- Expansion can mean the opportunity to benefit from economies of scale, which might mean prices can be made more competitive
- Larger firms have greater opportunities for research and development - the quality and range of products can improve further
- For a country, greater opportunities to trade can mean increases in economic activity and as a result economic growth
- For poor countries, the chance to trade might help them to be able to break out of the cycle of poverty that exists.
The benefits of trade can easily be seen in the huge range and quality of food we have to choose from in our supermarkets. It is not always good news for everybody, however! Copyright: Alfonso Lima, from stock.xchng.
The Costs of Trade
These can be summarised as:
- Changing international conditions can affect businesses in a negative way
- Competition from firms abroad can cause demand for a product or service to fall
- Employees can find themselves out of work if the competition from abroad means the firm they are working for has to cut back or even close down
- As the competitive conditions between countries changes, some firms or industries find they can no longer compete. This can lead to structural changes in an economy. What this means is that some industries, such as shipbuilding or coal mining, have virtually disappeared in the UK. Because labour supplies are cheaper in some other countries factories might close down or jobs like call centre operations moved to other countries. This can have a significant effect on many communities as well as individuals
- When structural changes occur, it is sometimes difficult for people to find new work, especially if they have particular skills
Task 1
This task requires you to carry out some simple research. Select a sample of 20 different products that you might find around the home. These products might include food, clothing, electrical equipment, cutlery, pots and pans, plates, furniture, hygiene products like toothpaste, DVDs and CDs and so on.
- When you have decided on your list, try and find out where the product you have identified was made.
- Either find a poster of a map of the world or sketch one out on a large sheet of paper. Use this to produce a large wall display to show the range of countries that we trade with in the UK and the types of products that we acquire from them
Competition from countries in Asia has had major effects on world trade. The growth of trade has helped many people in these countries but has also had effects on people in countries like the UK. How do we arrive at judgements about how trade has affected different people and different businesses and organisations? Copyright: Peggayapl, from stock.xchng.
Task 2
This task is designed to be quite challenging. The idea is to encourage you to think through and make some judgements on the costs and benefits of trade in particular scenarios.
Read the following scenario carefully:
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Business X sells clothing in the UK to a number of high street fashion and department stores. It manufactures clothes in two main factories - one in Nottingham and the other in Liverpool. The business has been noticing a slowdown in its sales in the last five years. It believes that the main reason is the competition it faces from firms in China who are producing good quality products but at lower prices. The business's market share has been steadily declining. It takes the decision to close down the factory in Nottingham and to source new clothing items from suppliers in parts of Asia. The closure of the factory in Nottingham will mean the loss of 250 jobs. The 300 people in the Liverpool factory will keep their jobs.
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Use the information in the scenario and the list of costs and benefits of trade above to produce an argument based around a consideration of the costs and benefits of trade.
To produce your argument you will have to think about some or all of the following:
- What are the changes that are occurring in the scenario?
- Who will be affected by these changes? Don't just consider the people and companies in the UK but elsewhere in the world as well
- How bad/strong/significant/important are the effects on the different groups you have identified?
- If these decisions were not taken, what might the outcome be for the business in the UK?
- Some consideration of the balance of the benefits to the people in other countries who are affected against those in the UK
- Some consideration of the balance of the costs to people in the UK against those of people in other countries
You should also try and remember to use business and/or economic terminology wherever possible in your answer.
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