Cambridge IGCSE Commerce: Globalisation of Trade — Revision Notes

Condensed for the final weeks. For the full explanation, use the Globalisation of Trade study guide.

3.1.1–3.1.2 Benefits and challenges of international trade

Benefits (to a country)	Challenges (to exporters/importers)
Wider choice of goods	Distance, language
Higher standard of living	Methods of payment, documentation
Lower cost of imports	Transport, customs duties
More investment	Non-payment, currency/FX risk
Job creation	Competition, different legal systems

Learn each bullet attached to a concrete example — “lower cost of imports” needs a why (another country may have lower production costs for that good) to score full marks in a scenario answer.

3.1.3 Balance of Trade vs Balance of Payments — the calculation trap

	Covers
Balance of Trade	Exports minus imports of goods only
Balance of Payments	Trade in goods and services, plus financial flows

Practise calculating each from a simple export/import figures table and stating whether the result is a surplus (exports > imports) or deficit (imports > exports).

3.1.4 Free trade, trading blocs and trade restrictions

Trading bloc: advantages (easier access to member markets, often no internal tariffs) vs disadvantages (loss of independent trade policy, exposure to the bloc’s own economic problems).

Restriction	Effect
Tariff	Raises the price of imported goods
Quota	Limits the physical quantity imported
Embargo	Bans trade entirely (a good, or with a country)

Sources of support for exporters: international trade fairs, cheaper bank loans, insurance guarantees.

3.2.1 Global supply chains

Type	Structure
Simple	Supplier → manufacturer → consumer
Complex	Supplier → agent → wholesaler → retailer → consumer

Upstream / enterprise / downstream framework: upstream = suppliers and raw materials; downstream = distribution to the end consumer. Use this structure explicitly when asked to “describe the global supply chain for [a named product].”

Benefits of managing global supply chains: lower cost of production, lower labour costs, lower cost of purchasing, advances in logistics and communication.

3.2.2 Global supply chain risks

Six named categories — always name the specific type, not “risk” generically:

• Environmental (pollution, deforestation)
• Natural disaster
• Financial
• Ethical
• Technological
• Political

Risk assessment — identifying and planning for these in advance — is examined as important in its own right, not just a list to recall.

Worked example: Balance of Trade calculation

A country exports goods worth $850m and imports goods worth $920m in one year.

Balance of Trade = Exports - Imports
                  = $850m - $920m
                  = -$70m  →  a DEFICIT

If services and financial flows were also given, you would instead be calculating the wider Balance of Payments figure, not the Balance of Trade — a common exam trap is applying the goods-only formula to a question that has actually supplied services or financial-flow data.

Connecting 3.1 and 3.2: why they’re taught together

Topic 3 scales Topic 1 and 2’s ideas up to an international level, and its two sub-topics reinforce each other in exam questions more than they might first appear to. A trading bloc removing tariffs (3.1.4) directly changes the cost calculations that make managing a global supply chain (3.2.1) attractive in the first place — lower cost of purchasing from a bloc member is partly a trade-restriction effect, not purely a supply-chain-management achievement. Similarly, political risk in a supply chain (3.2.2) often stems directly from the same trade-restriction tools covered in 3.1.4 — a government imposing a new tariff or embargo is both a trade-restriction event and a political supply-chain risk simultaneously. Revising the two sub-topics as genuinely connected, rather than as two separate lists, makes it easier to answer synoptic questions that draw on both halves of the topic in a single scenario.

Command words for Topic 3

Command word	What’s expected
State / Identify	A single named fact — a restriction type, a risk category
Describe	The structure or pattern (e.g. a simple vs complex supply chain)
Explain	The reasoning linking cause to effect (e.g. why a tariff raises the price paid by consumers)
Discuss / Evaluate	Both sides — a benefit and a matched challenge or disadvantage, reaching a judgement where the question asks for one

A question that asks a business to “discuss the benefits and challenges of joining a trading bloc” cannot score full marks from a one-sided answer, however detailed — the syllabus explicitly frames trading blocs as carrying both advantages and disadvantages, and the mark scheme rewards covering both.

Worked example: identifying a supply chain risk from a scenario

A company sourcing electronic components from an overseas supplier faces a sudden change in import tariffs following a change in government trade policy in the supplier’s country.

Risk category:  Political
Why:            The risk arises directly from a government policy
                change (a new tariff), which is the defining feature
                of political risk in a global supply chain, distinct
                from a financial risk (e.g. currency fluctuation) or
                an environmental risk (e.g. a natural disaster
                disrupting the supplier's factory).

Practising this identify-the-category-and-justify structure across different scenario descriptions is a more reliable way to handle supply-chain-risk questions than memorising the six category names in isolation, since exam scenarios describe a situation rather than naming the risk category directly.

Exam traps

• Confusing Balance of Trade (goods only) with Balance of Payments (goods, services and financial flows).
• Listing trade restriction types without linking each to its specific effect on price, quantity, or market access.
• Describing a supply chain without using the upstream/enterprise/downstream structure.
• Treating supply chain risk as one generic category instead of naming the specific type a scenario illustrates.
• Stating a trading bloc’s advantage without a matched disadvantage.

Self-test

1. What is the key difference between Balance of Trade and Balance of Payments?
2. Name the three types of trade restriction and one effect of each.
3. What distinguishes a simple from a complex global supply chain?
4. Name the six categories of global supply chain risk.
5. If a country’s exports exceed its imports, is the result a surplus or a deficit?

Answers: 1. Balance of Trade covers goods only; Balance of Payments covers goods and services plus financial flows. 2. Tariff (raises import prices), quota (limits import quantity), embargo (bans trade entirely). 3. A simple supply chain has one intermediary (manufacturer) between supplier and consumer; a complex chain adds agents, wholesalers and retailers. 4. Environmental, natural disaster, financial, ethical, technological, political. 5. A surplus.