Exercises: Globalisation, free trade, and protectionism

Explain what globalisation is and name two factors that have made it possible (cheap container transport, the internet). Then, play label detective: find three products at home or in your school bag and their country of manufacture, and comment on anything that surprised you.

Define export and import with a Spanish example of each (selling oranges to Germany; buying mobile phones manufactured in Asia or oil). Explain the two reasons why a country buys goods from abroad: because it lacks the product or because others produce it more cheaply.

The figure shows the trade balance of Exportia, an imaginary country, over two years: what it sold abroad (exports) and what it bought (imports), in billions of euros. In $2024$, it imported $280$ and had a deficit of $40$: it bought $40$ more from abroad than it sold.

1. a) Calculate Exportia's exports in $2024$, which is the missing figure in the chart.
2. b) Calculate the balance for $2023$ and state whether it was a surplus or a deficit.

Follow the journey of a $12\ \text{€}$ T-shirt: cotton from India, yarn and fabric woven in Bangladesh, made up in Bangladesh, designed in Spain, shipped by boat to Valencia and sold in a shop in your city.

1. a) Count how many countries take part and explain why it is called a 'global value chain'.
2. b) Argue why each stage is done where it is done (costs, know-how, closeness to the customer).

A multinational is a company operating in many countries: it designs in some, produces in others and sells in almost all of them.

1. a) Give two examples of multinationals you use or see daily and explain what makes them multinationals.
2. b) Argue two advantages they have over a neighbourhood shop (they buy and produce on a large scale, more cheaply) and one disadvantage for the neighbourhood (the profit leaves the area and they compete with local shops).

Each country specialises in what it produces best or most cheaply: Spain exports oil, oranges and cars, and buys oil and technology.

1. a) Explain why that exchange benefits both sides (each one does its own thing and buys the rest).
2. b) Argue what would happen if your country tried to produce everything, even bananas or microchips (dearer, less efficient).

The fair trade label guarantees that the producer — the coffee grower, the cocoa farmer — was paid a fair price and worked in decent conditions, with no child exploitation.

1. a) Explain what problem it tries to correct (the price the farmer receives is tiny compared with the final price).
2. b) A bar of conventional chocolate costs $1,20\ \text{€}$ and the fair trade one, $1,80\ \text{€}$: argue what you are paying for with the difference and whether you would buy it.

When a German tourist spends $800\ \text{€}$ at a hotel in Benidorm, Spain is 'exporting' services even though nothing crosses the border in a lorry.

1. a) Explain why tourism counts as an export (money comes in from abroad in exchange for a service done here).
2. b) Give two more examples of 'invisible exports' (a foreign student paying for a master's degree here, a Spanish software company selling licences to Chile).

Last year, Naranjania exported goods worth $400$ billion euros and imported $350$.

1. a) Calculate its trade balance and state whether it was a surplus or a deficit.
2. b) This year it exports $380$ and imports $430$: calculate the new balance and explain what has changed.
3. c) Reason why a deficit is not always bad news: what is the difference between importing sweets and importing machinery for factories?

Zapatilandia produces trainers, but imported ones are cheaper: costing $50\ \text{€}$ compared to $55\ \text{€}$ for local ones. The government introduces a tariff of $20\ \%$ on imported trainers.

1. a) Calculate the new price of the imported trainers.
2. b) Explain who wins and who loses from the tariff: the local factory, its workers, and the buyers.
3. c) What could the neighbouring country do in response, and what is this risk called (retaliation, trade war)?

Spain is part of the European Union and the single market: goods, people, services, and money move freely between member countries, and $20$ of them share the euro.

1. a) Explain two concrete advantages for you (travelling or studying in another EU country, shopping online at a European shop without customs duties, not having to exchange currency).
2. b) Give an example of a product we buy from another EU country and another that we sell to them, and explain why trading within the union is easier than outside it.

The trade balance of Vendelandia, in billions of euros: in $2022$ it exports $310$ and imports $300$; in $2023$ it exports $305$ and imports $330$; in $2024$ it exports $290$ and imports $350$.

1. a) Calculate the balance of each year and say whether it is a surplus or a deficit.
2. b) Describe the trend and give two possible explanations (it loses competitiveness; the bill for the energy it imports rises).
3. c) Argue why a deficit that repeats and grows worries more than a one-off one.

The local cheese of Queseria costs $9\ \text{€}$ a kilo; the imported one, $7\ \text{€}$. The Government is considering a $30\ \%$ tariff on imported cheese.

1. a) Calculate the price of the imported one with the tariff and compare it with the local one.
2. b) Explain who celebrates the tariff and who pays for it (local cheesemakers and their jobs, versus buyers, who pay more).
3. c) Analyse what can happen if the neighbouring country responds with a tariff on Queseria's wine (a trade war: it is paid by the wine exporters).

Your brother wants a games console only sold in the United States for $400$ dollars; the exchange rate is $1,10$ dollars per euro.

1. a) Calculate how many euros it costs today.
2. b) If in a month's time the rate moves to $1,00$ dollar per euro (the euro weakens), calculate the new price in euros and explain who wins and who loses when your own currency weakens (importing becomes dearer; exporting becomes cheaper for those abroad).

At the market, a kilo of tomatoes from the nearby market garden costs $2,80\ \text{€}$ and the imported one, $1,90\ \text{€}$.

1. a) Calculate how much more a family buying $2$ kg a week of local tomatoes pays over a year (count $52$ weeks).
2. b) Explain what that family is buying besides tomatoes (local jobs, less transport and fewer emissions, a cared-for landscape) and assess whether the extra price seems justified to you, and for whom.

A giant ship runs aground and blocks a key canal for two weeks: thousands of containers are delayed and the price of transport rises.

1. a) Explain why a jam $10.000$ km away can make the phone or trainers you buy here dearer (global chains are long and run 'just in time': factories barely keep any stock).
2. b) Argue what companies do to protect themselves (two suppliers on different continents, some stock) and what that protection costs.

A bicycle company in your region announces that it is offshoring its assembly plant to Vietnam, reducing its wage costs by $65\,\%$. Following the relocation, the retail price in Spain drops from $400\ \text{€}$ to $300\ \text{€}$, but $120$ direct jobs are lost in the area.

1. a) Analyse the distributional impact of this decision: identify which economic agents win and which lose with this measure, justifying in detail the benefits or harms for each.
2. b) A local group proposes imposing a $35\,\%$ tariff on the import of these bicycles to penalise offshoring. Predict what effects this protectionist measure would have on the retail price, the welfare of consumer households, and the long-term competitiveness of the company.
3. c) Design an alternative business strategy so that a bicycle factory located in an upper-middle wage country like Spain can compete in the global market without resorting to tariffs or wage cuts.

The government of "Nordia" approves a $25\,\%$ tariff on imported steel to protect its traditional steelmaking industry from cheap foreign competition. Six months later, the steel employers' association celebrates that $3.000$ blast furnace jobs have been saved; however, the automotive and home appliance employers' associations announce mass layoffs and a $15\,\%$ drop in their exports.

1. a) Explain the economic mechanism connecting the tariff applied to steel with the crisis triggered in Nordia's automotive and home appliance sectors.
2. b) If steel-exporting countries respond by imposing retaliatory tariffs on Nordia's agricultural products, analyse who ultimately bears the final net cost of the trade war that was started.
3. c) Evaluate under what very specific theoretical conditions (such as the 'infant industry' argument or 'national strategic security') a temporary tariff could be justified, and determine with reasoning whether Nordia's traditional steelmaking industry meets these requirements or not.

During an international logistics crisis, the collapse of major Asian ports disrupted the supply of microchips to Europe, halting automotive assembly lines, making new vehicles $20\,\%$ more expensive, and forcing temporary layoffs (ERTE).

1. a) Contrast the 'just-in-time' production model (lean production with near-zero inventory to minimise costs) with the 'just-in-case' model (precautionary stockpiling). Why did hyperglobalisation massively incentivise the former, and what structural vulnerability did it create in the face of supply shocks?
2. b) The European Union is considering two options to secure the supply of strategic components:

• Option A: Subsidise the construction of semiconductor plants in Europe, which requires billions of euros of public money and will yield chips that are $30\,\%$ more expensive than Asian ones.

• Option B: Continue importing from Asia, but mandate by law that companies diversify suppliers across at least four different countries and finance a joint warehouse with a six-month reserve stockpile.

Compare the costs, benefits, and risks of each alternative for taxpayers, businesses, and consumers, and defend which one you would adopt.

The athletic footwear company "Velox" is considering bringing its production back to Spain after fifteen years of manufacturing in Asia. Its unit cost data per pair are:

• In Asia: manufacturing of $16,50\ \text{€}$ and maritime transport, tariffs, and insurance of $3,50\ \text{€}$. Delivery time to European stores: $6$ weeks. The plant employs $300$ workers.

• In Spain (robotised plant): machinery depreciation and energy of $14,20\ \text{€}$, direct labour of $7,80\ \text{€}$, and internal logistics of $1\ \text{€}$. Delivery time: $48$ hours. The plant requires only $30$ maintenance and programming technicians.

1. a) Calculate the absolute and percentage difference in unit cost between both alternatives.
2. b) Justify which non-price competitive advantages (such as responsiveness to fashion trends or inventory holding costs) would allow Velox to be more profitable manufacturing in Spain despite having a higher unit cost.
3. c) Analyse the employment paradox of 'reshoring' (relocation back home): if the return of automated factories creates one-tenth of the jobs that were once offshored, what implications does this have for public employment policies and vocational training?

Analyse the following statement: "The commercial and financial globalisation of recent decades has been a zero-sum game where only multinational corporate elites have enriched themselves at the expense of the rest of humanity."

1. a) Refute the idea that globalisation has been a "zero-sum game" by providing economic arguments regarding the evolution of extreme global poverty in emerging countries and the purchasing power of consumers in Western economies.
2. b) Justify why, despite overall welfare gains, the manufacturing working class in advanced economies (such as traditional industrial hubs) perceives that it has been the major loser in the process.
3. c) Design an international economic policy measure (in the tax or labour sphere) aimed at redistributing the gains from global trade more equitably without resorting to protectionist barriers.

A shop offers two types of naturally roasted coffee in $250\ \text{g}$ packages:

• Standard coffee: $2,30\ \text{€}$. The intermediary pays the coffee farmer at origin $0,15\ \text{€}$ per package.

• Fair trade certified coffee: $3,70\ \text{€}$. It guarantees a minimum price at origin of $0,60\ \text{€}$ per package plus a premium intended for community projects (schools and health centers).

1. a) A family consumes four packages of coffee per month. Calculate the annual extra cost of choosing fair trade coffee. If the family's monthly disposable income after paying for housing and basic utilities is very tight, reason how the price elasticity of demand influences their purchasing decision.
2. b) Apply the concept of market failure (asymmetric information and non-internalized negative externalities) to explain why relying solely on "individual consumer awareness" is usually not enough to transform global supply chains.
3. c) Design two public intervention proposals (one regulatory on import standards and another on fiscal policy) that incentivize living wages in countries of origin without relying exclusively on the buyer's charity or goodwill.

More than $80\,\%$ of the active ingredients used to manufacture essential painkillers and antibiotics in Europe are produced in only two Asian countries due to absolute advantages in labor costs and less demanding environmental regulations.

1. a) Use the concepts of "opportunity cost" and "negative externality" to explain why the free market, guided exclusively by short-term profit maximization, has led to a geographic concentration of such magnitude in an essential good.
2. b) Three approaches are proposed to reduce the continent's health vulnerability:

1. Full reindustrialization (producing all active ingredients within Europe through state subsidies).

2. Mandatory strategic reserves (requiring pharmaceutical companies and hospitals by law to maintain a twelve-month frozen physical stock).

3. 'Friendshoring' and diversification (signing binding trade agreements with strategic partners spread across several continents).

Evaluate the economic feasibility and risks of each measure, and defend a combination of them that maximizes health security at the lowest cost to public budgets.

An international investigation reveals that the extraction of minerals needed to manufacture the battery of a $900\ \text{€}$ smartphone involves semi-slavery labor conditions and severe environmental degradation in the country of origin.

1. a) Analyze the economic incentive structure: why do voluntary Corporate Social Responsibility (CSR) seals and private audits commissioned by the tech brands themselves usually prove ineffective at eradicating these abuses at the first link of the chain?
2. b) Several parliaments are debating a "Due Diligence Act" that makes brands civilly and criminally liable for any violations of labor rights in their overseas supplier chain. Predict what effects this law will generate on device prices, on investment in traceability, and on the continued presence of multinationals in countries with low legal certainty.
3. c) If a cooperative launches a modular, easily repairable mobile phone with certified clean traceability onto the market, but it is $30\,\%$ more expensive and has lower technical specifications than those of the competition, analyze what barriers to entry and consumer behavior barriers it faces to survive commercially.