Globalisation and MNCs
Globalisation is the growing integration of economies through rising trade, investment and the movement of capital, labour and technology. MNCs (multinational companies) produce in more than one country and drive it. Host benefits: employment, investment and technology, tax revenue, exports (helping the current account). Concerns: profits sent home, depleting resources or harming the environment, and out-competing domestic firms.
Free trade and its benefits
Free trade = international trade — the exchange of goods and services between countries (exports and imports) — without barriers such as tariffs or quotas. Define it precisely: name the goods and services and the cross-border element, not just "trade without restrictions". Benefits: specialisation (higher world output), lower prices, greater choice, larger markets (economies of scale), and more competition forcing firms to be efficient.
Methods of trade protection
Protection restricts imports to shield domestic industry. Methods: tariff — a tax on imports (raises import prices, so consumers switch to home goods); import quota — a physical limit on the quantity imported; subsidy to domestic producers — a payment lowering their costs so they undercut imports; embargo — a complete ban on a good or with a country; and administrative/regulatory barriers — paperwork, strict standards, customs delays.
Arguments for and against protection
For protection: infant (sunrise) industries need time to grow; declining (sunset) industries get time to retrain; protect employment; prevent dumping (foreign goods sold below cost); and improve the current account (fewer imports). Against: higher prices for consumers; inefficiency as protected firms face less competition; less choice; and retaliation — others impose their own barriers, so exports fall too.
Drawn from real examiner reports.
Free trade ≠ 'trade without restrictions'
Defining free trade as just "trade without restrictions" misses marks. Examiners want the exchange of goods and services (exports and imports) between countries, without barriers such as tariffs or quotas. Name what is traded (goods and services) and that it crosses national borders — the vague phrase alone cannot gain full marks.
June 2022 Paper 2 Q2(a): some candidates merely defined free trade as "trade without restrictions" and did not specify exports and imports, or an exchange of goods and services, so could not achieve full marks.
Name a method AND explain how it works
Two linked slips on protection. First, on an explain question, candidates name a method (tariff, quota) then stop — you must show the mechanism (a tariff raises import prices, so consumers switch to domestic goods). Second, "taxes" is too vague: a tariff is a tax on imports specifically. Be precise about the method and develop the chain.
November 2022 Paper 2 Q5(a): some candidates gave vague answers such as "taxes" without making clear what was being taxed. June 2022 Paper 2 Q3(b): the main weakness was identifying the methods and stopping, without explaining how they worked.
Current account ≠ government budget
Keep two balances apart. The current account of the balance of payments records trade (exports and imports). The government budget balance is tax revenue minus government spending. Protection that cuts imports improves the current account (though a tariff also raises some tax). Imports vs exports = current account; tax vs spending = budget.
November 2022 Paper 2 Q5(b): some candidates confused the government budget balance with the current account balance when explaining the effect of restricting imports.
Know the meaning of dumping
Dumping is when a foreign firm sells its exports below the cost of production (or below its home-market price), often to drive domestic producers out of business. Some candidates do not know the term or confuse it with ordinary cheap competition. Preventing dumping is a recognised argument for protection — learn the definition precisely.
June 2022 Paper 2 Q4(a): a number of candidates were unaware of the meaning of dumping. June 2023 Paper 2: a relatively high proportion did understand dumping when giving reasons to restrict imports.
A smaller quota means fewer imports
Import quotas confuse candidates. A quota is a limit on the quantity of imports. Reducing a quota lets fewer goods in, cutting import expenditure and helping a current-account deficit. Raising a quota lets more in. Do not reverse the direction — a lower quota means less imported, not more.
June 2023 Paper 1 Q30: changes in import quotas caused confusion — reducing a quota lets fewer goods in, cutting import expenditure and helping a current-account deficit.
Protection risks retaliation
Do not assume protection automatically works. If a country protects its industry, trading partners may retaliate with their own barriers on its exports, so exporters lose sales and jobs — the intended benefit may not materialise. A strong answer weighs the gains for protected industries against higher prices, inefficiency and this retaliation risk.
November 2022 Paper 2 (subsidy question): strong answers recognised that other countries may retaliate with their own protectionist measures, so the intended benefit may not materialise.
The Paper 2 (a)–(d) ladder
The 0455 Paper 2 ladder: (a) define (2) — precise meaning only; (b) explain (4) — one point developed; (c) analyse (6) — a sustained one-sided chain, no evaluation; (d) discuss (8) — both sides plus a supported judgement.
Develop both sides, not one-liners
On the (d) discuss, one-line points on each side stay at Level 1. Develop arguments for protection with full chains (tariff → higher import prices → buy domestic → output and jobs rise), then arguments against (higher prices, inefficiency, retaliation), then judge.
Make the conclusion judge, not repeat
A conclusion that simply repeats earlier points adds nothing. Your (d) judgement must say which side is stronger and under what conditions — e.g. protection helps temporarily for an infant industry but harms as a permanent policy. State a clear, conditional verdict.
Show the mechanism on "explain"
On a (b) explain question, never stop at naming a method or benefit. Show how it works: a subsidy lowers domestic firms' costs, so they can charge lower prices and compete with imports. The mechanism, not the name, earns the higher marks.
Globalisation is the process by which national economies become more integrated through rising international trade, foreign investment, and the movement of capital, labour and technology across borders. The world increasingly acts as a single market.
MNCs (multinational companies) are firms that produce in more than one country, and they are a key driver of globalisation.
| MNCs — benefits to a host country | MNCs — concerns for a host country |
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