Globalisation and Trade Restrictions: Causes of Changes in Globalisation

This section explores how changes in trade restrictions have influenced the process of globalisation. We will examine the historical context of trade barriers and how their reduction has driven increased international trade and economic integration.

What is Globalisation?

Globalisation refers to the increasing interconnectedness and interdependence of countries through the flow of goods, services, capital, information, and people. It is driven by factors such as technological advancements, reduced trade barriers, and the growth of multinational corporations.

Trade Restrictions: An Overview

Trade restrictions are measures imposed by governments to limit or prevent international trade. These can be broadly classified into two main types:

• Tariffs: Taxes imposed on imported goods.
• Quotas: Limits on the quantity of specific goods that can be imported.

Other less common trade restrictions include subsidies (government support for domestic industries), embargoes (complete bans on trade with a specific country), and non-tariff barriers (e.g., complex regulations, standards). These restrictions aim to protect domestic industries, manage trade imbalances, or pursue political objectives.

Historical Context of Trade Restrictions

Historically, trade restrictions were widespread. Mercantilism, a dominant economic policy from the 16th to the 18th centuries, advocated for high tariffs and quotas to accumulate wealth through a favorable balance of trade. Colonialism also relied heavily on trade restrictions to benefit the colonizing powers.

The Reduction of Trade Restrictions: Key Drivers

Significant changes in trade restrictions have occurred throughout history, leading to a dramatic increase in globalisation. The following factors have been crucial:

• The Rise of Free Trade Ideologies: Economists like Adam Smith advocated for free trade, arguing that it leads to greater efficiency and lower prices for consumers.
• The Treaty of Ghent (1814): This treaty, which ended the War of 1812, included provisions for free trade, marking an early step towards reduced trade barriers.
• The Cobden-Chevalier Agreement (1860): This agreement between Britain and France eliminated tariffs on most goods, significantly boosting trade between the two countries.
• The Gold Standard (late 19th - early 20th centuries): The adoption of the gold standard facilitated international trade by providing a stable currency exchange rate.
• The Treaty of Versailles (1919): This treaty included provisions aimed at reducing tariffs among European nations.
• The General Agreement on Tariffs and Trade (GATT): Established in 1948, GATT aimed to reduce tariffs and other trade barriers through multilateral negotiations. It played a crucial role in fostering post-war trade growth.
• The World Trade Organization (WTO): Established in 1995, the WTO expanded upon GATT, providing a more comprehensive framework for regulating international trade and resolving trade disputes. The WTO has significantly reduced tariffs and other trade barriers globally.

How Reduced Trade Restrictions Drive Globalisation

The reduction of trade restrictions has a profound impact on globalisation through several mechanisms:

1. Increased Trade Volumes: Lower tariffs and quotas make imported goods cheaper, leading to increased demand and higher trade volumes.
2. Economies of Scale: Businesses can expand their production to serve larger markets, achieving economies of scale and reducing per-unit costs.
3. Specialisation and Comparative Advantage: Countries can specialise in producing goods and services where they have a comparative advantage (i.e., can produce at a lower opportunity cost), leading to greater efficiency and overall economic growth.
4. Foreign Direct Investment (FDI): Reduced trade barriers encourage FDI, as companies are more likely to invest in countries with open markets.
5. Technological Diffusion: Increased trade facilitates the spread of technology and innovation across borders.

Table: Evolution of Trade Restrictions

Period	Dominant Trade Policy	Examples
16th - 18th Centuries	Mercantilism	High tariffs on raw materials imports, export subsidies
19th Century	Gradual reduction of tariffs	Cobden-Chevalier Agreement (1860)
Early 20th Century	Gold Standard	Stable currency exchange rates facilitating trade
Post-World War II	GATT	Multilateral tariff reduction agreements
Late 20th - 21st Centuries	WTO	Further tariff reductions, dispute resolution mechanisms

Conclusion

Changes in trade restrictions have been a major catalyst for globalisation. The ongoing reduction of these barriers, driven by economic and political factors, has led to unprecedented levels of international trade, investment, and economic integration. While trade restrictions still exist in some forms, the overall trend has been towards greater openness and interconnectedness in the global economy.