What is a Trade Bloc?

A trade bloc is a group of countries that have agreed to reduce or eliminate trade barriers between themselves. Reducing the barriers can include,
  • Minimising or removing tariffs,
  • Minimising or removing quotas,
  • Removing other restrictions on trade such as subsidising exporting industries.

What are the types of trade bloc?

Trade blocs can be formed for a variety of reasons, such as to increase economic growth, create jobs, and protect domestic industries.
There are different types of trading blocs, depending on the level of integration between the member countries.
  • The most basic type of trading bloc is a free trade area (FTA), in which countries agree to eliminate tariffs on goods traded between them.
  • A customs union is a more integrated type of trading bloc, in which countries agree to eliminate tariffs and quotas on goods traded between them, and to adopt a common external tariff on goods traded with non-member countries.
  • A common market is an even more integrated type of trading bloc, in which countries agree to eliminate tariffs and quotas on goods traded between them, to adopt a common external tariff on goods traded with non-member countries, and to allow the free movement of factors of production (labour, capital, and services) between them.
  • There are other types of increased integration blocs such as currency union, monetary union and political union however these are used infrequently in A Level economics. 

What are the advantages and disadvantages of trade blocs?

Trading blocs can have a number of benefits for both member countries and non-member countries. For member countries,
  • Trading blocs can lead to increased economic growth, as businesses have access to a larger market and can produce goods more efficiently.
  • Trading blocs can also create jobs, as businesses expand their operations and hire more workers.
  • For non-member countries, trading blocs can lead to increased competition, which can drive down prices and improve quality.

However, trading blocs can also have some disadvantages. For example,
  • They can lead to trade diversion, which occurs when a country imports goods from a member country instead of from a non-member country, even though the non-member country may be able to produce the goods more efficiently.
  • Trading blocs can also lead to higher prices for consumers, as businesses may pass on the costs of tariffs and other trade barriers to consumers.
the image shows the three stages of integration in a trade bloc. it gives the example of NAFTA for a free trade area, the example of CACM for a customs union and the example of The European Union (EU) for a common market.
What is a trading bloc?