What Are the Advantages and Disadvantages of Trade Blocs?
The advantages of trading blocs include easy access to each other's markets, protection of individual markets from cheap imports and increased trade between member countries. Disadvantages of trading blocs include limited trade with producers outside the trading bloc, distortion of world trade and retaliation by other countries.
A significant advantage of a free trade bloc, such as NAFTA, is that consumers in all member countries benefit from higher quality goods and services at lower prices. This happens because of the elimination of barriers to trade, such as tariffs and quotas, which allows companies from different countries to compete equally with local companies. These companies benefit from increased access to resources, which lowers the cost of production of goods and services significantly.
Disadvantages of free trade blocs include the displacement of jobs because of increased competition from companies in member countries. Workers are usually displaced as companies are closed and they may remain unemployed for extended periods of time; workers usually get jobs later, but at a lower wage. National economies within a free trade bloc are susceptible to events such as recessions in other member countries, which affect them directly. This is because free trade blocs encourage specialization among member countries, which increases their dependency on each other.
The different types of trading blocs include: Preferential Trade Areas, Free Trade Areas, customs unions and common markets.