The economic bloc for my state is the United States of America. Producers in regions that have a limited geographic market are likely to benefit from the United States trade blocs. In case the home demand needs producers to export existing capacity, loss of foreign market can spread in smaller volume of output therefore raising the unit costs. Risk from this type of vicious cycle can make the producer to decline foreign orders, which need new plant as well as equipment. However, a trading block helps to guarantee access as well as cushions against the threat resulting from market closure. Consequently, this gives a chance to large-scale producers in small markets to illiquid investment, which rely on the economies of scale. Trade blocs’ helps small-scale producers reap big from trade blocs since the countries have a great chance of expanding their potential as well as concentrating on production. However, large-scale producers that have a small market at home will consider the security of a regional program (Chase, 2006).
Trade blocs help in increased economic integration among the member states. It represents various types of economic integration in a particular region. Trade
Blocs help in unifying independent economies and bring nations closer to each other. Agreements among states help in enhancing regional co-operation along with interrelationship. This blocs help in bringing states closer to each other therefore helping in unifying independent economies. It also enhances economic cooperation among member states of the bloc.
Trade blocs help in creating employment opportunities. Large-scale production along with distribution results in high employment opportunities both directly and indirectly. Consequently, this leads to high-income level among the people in the member states, which eventually leads to improved living standards of the citizens in their respective countries. Trade blocs’ help to increase income as well as employment level of its member states. Capital is needed to increase employment opportunities. Trade blocs’ results in easy transfer of resources viz human, natural as well as capital resources that are used optimally to create employment chances.
Even though regional trading blocs complement multilateral trading system, they are discriminatory and therefore they depart from the norm of normal trading relations. In some cases regional trading blocs decrease the discretion of its member states to pursue trade liberalization with non-member states is likely to restrain multilateralism. For instance, if Malaysia has succeeded in getting a market with the US, it is likely to have few interests in a free-trade agreement with US. However, its unsuccessful competitors such as Argentina will be eager to have regional free-trade agreement and consequently get Malaysia’s part of the United States market; this is not by making cheaper or better products but by getting special treatment according to the United States trade law.
Another disadvantage associated with trade bloc is inefficiencies as well as trade diversions. Trade blocs’ results in inefficiencies as well as trade diversion since countries that are inefficient within the trade bloc are shielded from more productive producers who are not in the trade bloc (Princen & Lelieveldt, 2011). This does not encourage efficiency in such circumstances therefore limiting efficiency. Additionally, as a result of encouraging inefficiencies in some non-member states that are not effective get a reduced market potential.
- Chase, K. (2006). Trading blocs: States, firms and regions in the world economy. Michigan: University of Michigan.
- Princen, S & Lelieveldt, H. (2011). The politics of the European Union. New York: Cambridge University Press