International trade - real world examples for IB students
We’ve covered both microeconomics, macroeconomics, and development in our series on real world economic examples for IB students. In this article, our IB author, George Graves, discusses the effect of the Covid-19 pandemic on international trade. Tangible examples of economic concepts are an essential tool for IB Economics students, particularly those taking their exams in May 2022 where paper 1 will require you to use real world examples when answering questions. The examples below will provide you with a good starting point for conducting further research and building your understanding of the factors that influence international trade.
Covid-19 and international trade
As well as having a major impact on domestic economies, the pandemic has affected and exposed several issues concerning globalization and world trade. These are ongoing and there are likely to be further repercussions over the coming months. There are, however, some significant developments that have already been identified.
Supply chain disruptions
The pandemic has exposed one of the weaknesses inherent in the specialization and trade that are characteristic of the global economy. For IB Economics we learn about the benefits of free trade in accordance with the principle of comparative advantage with countries benefitting from specializing in the production of goods which they can produce at a lower opportunity cost. One of the risks of this is that it can lead to overdependence on trade for strategically important goods. As discussed in a July 2020 article by SupplyChainDive, the pandemic has shown that it is not only strategically important goods that might be at risk but a much wider range of ordinary products as well. It is estimated that 73% of companies worldwide experienced supply chain disruptions as a result of the response to the pandemic and as a consequence of this many companies are looking to switch to more locally produced components and factor inputs. In other words, the global trend of outsourcing production to low cost countries like China is likely to be reversed which could have serious consequences for the future volumes and direction of international trade. In the near future this is likely to mean less specialization and a higher degree of self-sufficiency than was previously the case.
Reassessment of trade restrictions and decisions such as Brexit
The problems noted above constituted a huge blow on an already battered global trading system that was counting the cost of the trade wars initiated by the USA with China and the EU. For the UK and the EU these problems were further exacerbated by the impending Brexit which was finalized this month (January 2021). The UK was already facing shortages of certain agricultural products caused by restrictions on foreign workers for harvesting due to Brexit, and the pandemic has added to supply problems. All of these factors, which lead to increased uncertainty, have a destabilizing effect on world trade and provide a strong incentive for countries to reduce their dependence on imports of certain goods and to broaden their range of domestic production.
China’s recovery
According to The Economist (October 31st, 2020, Is China suppressing the yuan?), China has managed to weather the Covid storm better than other countries, having avoided long term lockdowns and disruption to industrial production and has experienced “a surge in its trade surplus”. What is interesting from an international trade perspective is that this positive performance should lead to an appreciation of the currency, but this has not in fact occurred. The implication of this is that the authorities are preventing the market forces from operating freely and could be evidence that the country is in fact a ‘currency manipulator’, which it has been accused of in the past. Ironically this was the original justification for the US embarking on the trade war.
Deepening your understanding of IB Economics
The purpose of this article and its counterparts for micro and macro economics is to help you deepen your understanding of concepts in IB Economics through the use of real world examples. This is not only important for your overall comprehension of the subject but for those of you taking exams from May 2022 onwards, it will be an essential skill you will need to demonstrate during your exams. Don’t leave identifying suitable examples until the last minute as it will only cause stress and confusion. Instead, start cataloguing the examples you find now (start with the ones above). Create a spreadsheet, keep a notebook of examples organised by topic, or bookmark relevant webpages. Find a system that works for you and use it.
While you are thinking about how best to prepare yourself for your IB Economics exams, take some time and check out our IB Economics study guides. Our guides offer a thorough review of the syllabus topics while also providing lots of practice questions and tips on how to succeed in your exams. The guides can be found on our IB Economics subject page where you can also find more free articles and resources.
