Chapter 18 Foreign Trade

December, 2005

Procedure

1. Summary of chapter 18

2. Students’ presentations

3. In-class activities

A1 Introduction – From Imperial Power to European Partner

The dominant economic philosophies in nineteenth century Britain were laissez-faire (non-involvement of the government in business) and free trade.

After World War II, Britain initially established EFTA (European Free Trade Association) in 1950, along with other non-EEC European countries.

Increasingly closer union between Britain and her European partners.

A2 Imports & Exports

With 1% of the world’s population, Britain has approximately 5% of world’s trade.

Britain is the fourth or fifth largest trading nation in the world, ranking behind the USA, Germany and Japan, and sometimes France.

Major trading nations; values of exports & imports in US dollars(billions) 2000

0 200 400 600 800 1000 1200 1400

Switzerland

Belgium

Netherlands

Canada

Italy

Britain

France

Japan

Germany

USA

Imports

Exports

In the past, the Commonwealth countries were Britain’s chief trading partners. This trade has declined and trade with Europe has increased. The diagram on p.291 shows the changing pattern of Britain’s export trade.

The European Union--- Britain joined the EEC in 1973 and as one of its members Britain is now part of an EU trading bloc accounting for about one third of the world’s trade. --- Nowadays the nations of the European Union taken as a whole are the largest group of countries both as suppliers and markets for the UK. In 1998 they bought 58% of British exports and provided 55% of the country’s imports.--- Within the EU Germany is Britain’s major market and supplier of imports (mainly machinery and manufactured goods including cars and chemicals). Next in importance are France, which sells manufactures and food to Britain, and the Netherlands which provide dairy produce and other food, followed by Italy, Belgium and Ireland.

--- In 1992 the Single European Market was introduced. This enables the free passage of goods, capital and labour between the member countries.

A3 THE INTERNATIONAL ROLE OF THE CITY OF LONDON

The City of London has the greatest concentration of foreign banks in the world. a banking sector that accounts for the largest share - almost one-fifth -

of total international bank lending. one of the world’s biggest international insurance markets. the world’s largest foreign exchange market. the largest centre in the world for trading overseas equities. one of the world’s most important financial derivatives markets. the principal markets for transactions in a large number of commodities. a comprehensive range of ancillary and support services, including

legal, accountancy and management consultancy. a history of innovation and flexibility, which contributes to London’s

strength as a financial centre.

A4 MULTINATIONALS In 1999 Britain ranked second in the world at attracting

inward investment. It attracted 29% of all inward investment into the EU. Overseas businesses investing in Britain generate an estimated 40% of UK exports. 48% of inward investment projects in Britain are from the USA.

British investments overseas are even greater. The UK was the world’s largest outward investor in 1999 (US $212 billion), surpassing the United States for the first time since 1988. This amounts to approximately 15% of the world total.

Company Product Country

Ford Motor vehicles USA

Philips Electrical goods Netherlands

Michelin Tyres France

ICI Chemicals UK

Haier Domestic appliances

China

Marks & Spencers

Clothing and food

UK

In-class Activity

Work in group of four

Draw up a list of advantages and disadvantages that you can see for Britain (or any other host country) in multinationals.

Among many others, the advantages of multinationals are a) to ease the tensions of unemployment by bringing chances of jobs to the local area, b) to make contribution to the Britain’s balance of trade, and c) to introduce efficient working methods.The disadvantages of multinationals include: a) bring with them strong competition to the local economic market; b) be considered as a threat to the home economy; and c) have a bigger chance to sell their products in otherwise restricted markets;

d) they easily switch production to another country where labour is cheaper or where there are more incentives, e.g. investment grants;

e) they pay less tax than local companies since they arrange for profits to be made in low tax areas.