What are the advantages and disadvantages of being in a trading bloc?

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justaguide | College Teacher | (Level 2) Distinguished Educator

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A trading bloc is formed between a group of nations that think the reduction or elimination of restrictions and tariff in trade between them would benefit their economies.

The participants of a trade bloc like NAFTA, MERCOSUR, etc. allow cross- border flow of products with very few restrictions.

The free movement of products encourages efficiency and allows each nation to use its absolute and comparative advantages to the maximum extent. Customers are able to get products at better prices and companies are able to make higher profits by sourcing their resources from where it is available at the lowest prices.

Disadvantages of trading blocs are in the form of a movement of funds to encourage job formation in nations where labor is the cheapest. This reduces the number of jobs in nations where labor is more costly and encourages outsourcing to other nations of the trading bloc.

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