AQA GCSE Economics: Free trade, the EU and globalisation (8136)

Free trade is trade between countries without barriers such as tariffs (taxes on imports) or quotas (limits on the quantity imported). A free-trade agreement is a deal between countries to remove or reduce those barriers, and the European Union is the best-known example for the UK. Globalisation is the growing integration of the world’s economies through trade, investment, technology and the movement of people. AQA GCSE Economics (8136) sections 3.2.4.3 and 3.2.4.4 ask you to weigh the arguments for and against free trade, explain the significance of agreements such as the EU, explain what has driven globalisation, and judge its benefits and drawbacks for producers, workers and consumers, including moral, ethical and sustainability issues.

Both sections are in 3.2 How the economy works, assessed on Paper 2, with no tiers. Numbers are invented. Pair this guide with the revision notes and the practice questions. Why countries trade and exchange rates are covered in the trade and exchange rates guide. Course links: AQA GCSE Economics hub, checklist and free diagnostics.

Syllabus coverage

Specification point	What you must be able to do
3.2.4.3 Free trade	Explain the arguments for and against free trade
3.2.4.3 Free-trade agreements such as the EU	Explain the significance and benefits of free-trade agreements
3.2.4.4 Main features of globalisation	Explain the factors behind the growth of globalisation, including new technology and multinational companies
3.2.4.4 Benefits and drawbacks	Explain the benefits and drawbacks for producers, workers and consumers in the UK and in less developed countries
3.2.4.4 Moral, ethical and sustainability considerations	Explain the moral, ethical and sustainability issues when UK producers trade with other countries

What are the arguments for free trade?

• Lower prices for consumers: no tariffs means imports are cheaper.
• More choice: consumers can buy goods from around the world.
• Specialisation: countries focus on what they do best, so world output rises.
• Competition: domestic firms are pushed to become more efficient and innovative.
• Larger markets: exporters can sell to more customers without facing tariffs.

What are the arguments against free trade?

• Job losses: domestic industries that cannot compete with cheaper imports may close, causing structural unemployment.
• Infant industries: new domestic industries may need protection until they are large enough to compete.
• Dependence: relying on imports for essentials, such as food or energy, can be risky.
• Unfair competition: some firms abroad may have lower labour or environmental standards.

Worked example: the effect of a tariff (illustrative)

A country imports trainers at 40 units a pair. It places a 25% tariff on them. The price rises to 40 × 1.25 = 50 units. Domestic trainer makers can now compete more easily, but consumers pay 10 units more per pair. Removing the tariff under a free-trade agreement reverses this: cheaper trainers for consumers, more pressure on domestic producers.

What is a free-trade agreement, and why do they matter?

A free-trade agreement removes or reduces tariffs and quotas between member countries. Some agreements go further. The European Union is a single market in which goods, services, capital and people can move freely between member states, with a common external tariff on goods from outside.

Benefits of free-trade agreements

• Exporters gain tariff-free access to a large market.
• Consumers get cheaper goods and more choice.
• Firms can build supply chains across members without paying tariffs at each border.
• Countries may attract investment from firms wanting access to the whole market.

Significance for the UK. The EU was for many years the UK’s largest trading partner. The UK left the EU on 31 January 2020 and now trades with it under a separate trade agreement. When judging free-trade agreements, weigh the gains from easier trade against limits on a country’s freedom to set its own trade rules.

What has caused globalisation?

• New technology: the internet, mobile communications and container shipping have cut the cost and time of trading and communicating across the world.
• Multinational companies (MNCs): firms that operate in more than one country spread production, investment and brands worldwide.
• Lower trade barriers: free-trade agreements have made trade cheaper.
• Cheaper transport: goods and people move more easily.

What are the benefits and drawbacks of globalisation?

In developed countries such as the UK

Group	Benefits	Drawbacks
Producers	Bigger markets; cheaper materials from abroad	Strong foreign competition; some firms close
Workers	Jobs in growing export industries and in MNCs	Jobs lost when production moves to lower-cost countries
Consumers	Lower prices and wider choice	Fewer locally made goods; disruption if supply chains break

In less developed countries

Group	Benefits	Drawbacks
Producers	Access to world markets; investment from MNCs	Local firms may be pushed out by MNCs
Workers	New jobs, often paying more than local alternatives; new skills	Low wages and poor conditions in some factories
Consumers	Access to more goods and services	Profits may flow back to the MNC’s home country

What moral, ethical and sustainability issues does globalisation raise?

• Working conditions: UK firms buying from abroad may rely on suppliers that pay very low wages or use unsafe workplaces. Should firms check their supply chains?
• Environment: shipping goods around the world adds to carbon emissions, and production may move to countries with weaker environmental rules.
• Fair trade: schemes that guarantee minimum prices to farmers in less developed countries show one way of making trade fairer.
• Sustainability: using finite resources to meet demand today may leave less for future generations.

Strong answers bring these issues into judgements rather than listing them separately.

Common errors

• Defining free trade as “trade that costs nothing”; it means trade without barriers such as tariffs and quotas.
• Treating globalisation only as good or only as bad; the specification asks about different groups in different countries.
• Forgetting that cheaper imports benefit consumers even when they hurt some domestic producers.
• Describing an MNC simply as “a big company”; it operates in more than one country.

Frequently asked questions

What is the difference between a tariff and a quota? A tariff is a tax on imports that raises their price; a quota is a limit on the quantity that can be imported.

Why do countries join free-trade agreements? To give their exporters tariff-free access to members’ markets and to give consumers cheaper imports.

Who loses from globalisation in the UK? Workers and firms in industries that cannot compete with cheaper production abroad, such as some manufacturing.

What role do multinational companies play in globalisation? They spread production, investment and technology across countries, linking economies together.

Official syllabus

AQA GCSE Economics (8136) specification, for first teaching from September 2017, published by AQA: sections 3.2.4.3 Free-trade agreements including the European Union and 3.2.4.4 Globalisation: benefits and drawbacks.