Globalisation and international trade
Globalisation is the growing connection between the economies of different countries through trade, investment and technology. It lets businesses sell in new markets, buy cheaper materials and set up operations abroad. Countries export goods and services they sell to other countries and import those they buy from abroad. Businesses trade internationally to reach larger markets and increase sales.
Multinational companies
A multinational company (MNC) is a business that has operations in more than one country. For a host country an MNC can bring jobs, investment and new skills, but profits are often sent back to the home country and local firms may struggle to compete.
Example
A global electronics MNC opens a factory abroad. Local workers gain jobs and training, but some smaller local producers lose sales to the larger firm.
Exchange rates and trade barriers
An exchange rate is the price of one currency in terms of another. Changes in the exchange rate affect the price of imports and exports.
Key idea
When a currency falls in value (depreciates), exports become cheaper for foreign buyers and imports become dearer. When a currency rises in value (appreciates), imports become cheaper and exports become dearer.
Governments may protect home producers using a tariff, a tax on imported goods that makes them more expensive.
Remember
- Exports leave the country; imports come in.
- Weaker currency helps exporters; stronger currency helps importers.
- A tariff is a tax on imports.