Cambridge IGCSE Economics 0455
Syllabus points
- Define globalisation and the role of multinational companies (MNCs).
- Explain free trade and the benefits of trade.
- Explain methods of protection and the arguments for and against them.
Globalisation
Globalisation is the growing connection and integration of economies around the world, through trade, investment, technology and the movement of people. Multinational companies (MNCs) — firms that operate in several countries — are key drivers, bringing investment and jobs but sometimes exploiting cheap labour or avoiding taxes.
Key definitions
| Term | Definition |
|---|---|
| Globalisation | The increasing integration of the world's economies. |
| Free trade | Trade between countries without barriers such as tariffs. |
| Tariff | A tax on imported goods. |
| Quota | A limit on the quantity of a good that can be imported. |
| Protectionism | Government policies that restrict imports to protect domestic industry. |
Free trade and its benefits
Free trade means trading without barriers. Benefits include lower prices, more choice, greater efficiency through specialisation, and access to larger markets.
Methods of protection
Governments may protect domestic industries using:
- Tariffs — taxes on imports, raising their price.
- Quotas — limits on the quantity imported.
- Subsidies — payments to domestic firms to lower their costs.
- Embargoes — bans on trade with certain countries or goods.
Arguments for and against protection
| For protection | Against protection |
|---|---|
| Protect infant industries while they grow | Higher prices and less choice for consumers |
| Protect jobs in declining industries | Protected firms stay inefficient |
| Prevent dumping of cheap foreign goods | Risk of retaliation and trade wars |
| Raise government revenue (tariffs) | Reduces the gains from specialisation |
Protection can shield jobs and new industries but usually raises prices, protects inefficiency and risks retaliation.
Worked example
A country places a tariff on imported steel to protect its own steelmakers. Domestic steel firms and their workers benefit, but car makers and builders now pay more for steel, raising their costs and prices. Other countries may retaliate with tariffs on this country's exports — showing why economists usually favour free trade.
Common exam mistakes
- Confusing a tariff (tax) with a quota (quantity limit).
- Giving only one side of the protection debate.
Exam technique
Define the method of protection precisely, then balance the benefits (jobs, infant industries) against the costs (higher prices, inefficiency, retaliation).
Quick revision
- Globalisation = integrated world economy; MNCs are key players.
- Protection methods: tariffs, quotas, subsidies, embargoes.
- Free trade lowers prices; protection risks inefficiency and retaliation.