Why do countries trade, and how do they protect or open their markets?
Globalisation, absolute and comparative advantage, the gains from trade, protectionism, trading blocs and the role of the World Trade Organisation.
An Edexcel A-Level Economics A answer to international economics and trade, covering globalisation and its effects, absolute and comparative advantage, the gains from specialisation and trade, the patterns of trade, methods of protectionism, trading blocs and the role of the World Trade Organisation.
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What this dot point is asking
Edexcel wants you to explain globalisation, distinguish absolute from comparative advantage, show the gains from trade, explain the methods and effects of protectionism, and evaluate trading blocs and the role of the WTO.
Globalisation, absolute and comparative advantage
The gains from trade come from specialising where opportunity cost is lowest, then exchanging at terms of trade that lie between the two countries' opportunity-cost ratios, so both consume beyond their own production possibility frontiers. The model assumes constant returns, no transport costs and factor mobility, which are evaluation points.
Protectionism
Trading blocs and the WTO
A trading bloc is a group of countries that reduce trade barriers among themselves: a free-trade area (no internal tariffs), a customs union (a common external tariff too) or a single market (free movement of factors). Blocs create trade creation (a shift to lower-cost producers within the bloc) but can cause trade diversion (away from a lower-cost non-member). The World Trade Organisation (WTO) promotes free trade, runs negotiating rounds and settles disputes, though progress (such as the Doha Round) has stalled.
Examples in context
- US-China tariffs (2018 onward). A real trade war: tariffs and retaliation that raised costs for firms and consumers, illustrating protectionism's downsides.
- The EU single market. A deep trading bloc with free movement of goods, services, capital and labour, central to UK trade debates after Brexit.
- Steel dumping. Cheap subsidised steel exports prompted anti-dumping tariffs, a real infant-industry and dumping case.
- Comparative advantage in services. The UK's strong comparative advantage in financial and business services shapes its trade pattern.
Try this
Q1. Explain the difference between absolute and comparative advantage. [3 marks]
- Cue. Absolute advantage is producing with fewer resources; comparative advantage is producing at a lower opportunity cost.
Q2. Explain one effect of a government imposing a tariff on imported steel. [4 marks]
- Cue. Higher import prices protect domestic producers and raise revenue, but raise costs for steel users and risk retaliation.
Exam-style practice questions
Practice questions written in the style of Pearson Edexcel exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
Edexcel 20185 marksCountry A can produce 10 wheat or 5 cloth per worker; Country B can produce 4 wheat or 4 cloth per worker. Calculate each country's opportunity cost of cloth and identify who has comparative advantage in cloth.Show worked answer →
A worked calculation on comparative advantage.
Country A's opportunity cost of 1 cloth is the wheat forgone: wheat. Country B's opportunity cost of 1 cloth is wheat.
Country B forgoes less wheat per cloth (), so Country B has the comparative advantage in cloth and should specialise in it, while Country A specialises in wheat.
Markers reward (1) opportunity costs computed correctly, (2) comparing them, (3) identifying B's comparative advantage in cloth from the lower opportunity cost.
Edexcel 202312 marksAssess the likely effects of a government imposing tariffs on imported manufactured goods.Show worked answer →
A 12 mark question (around 8 KAA, 4 evaluation).
KAA: a tariff raises the price of imports, shown on a domestic demand-and-supply diagram with the tariff lifting the world price line; domestic output and producer surplus rise, imports fall, government gains tariff revenue, but consumers pay more and there is a deadweight welfare loss.
Evaluation: tariffs can protect infant industries and jobs and counter dumping, but invite retaliation, protect inefficiency and raise input costs. The net effect depends on elasticities and retaliation. Reach a judgement.
Markers reward the tariff diagram with welfare areas and balance.
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Sources & how we know this
- Pearson Edexcel A-Level Economics A (9EC0) specification — Pearson Edexcel (2015)