Assess globalisation, multinational firms and trade barriers
Explain how cross-border integration changes trade and compare reasons and effects of trade restrictions.
Cambridge IGCSE Economics 0455 / IGCSE (9–1) Economics 0987, 2027–2029 Version 1. Apply each model to the stated evidence and qualify conclusions where effects depend on context. Practice is original and self-checked; it is not a Cambridge paper, mark scheme or official grade.
Before you begin
- No prior economics study is assumed. Read the scenario for the decision-maker, the market or economy involved, the time period and the evidence supplied.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
How can a multinational company affect a host country?
What you will learn
- Define globalisation and explain its drivers
- Assess multinational companies
- Compare trade restrictions and their consequences
Globalisation links economies
Globalisation is increased integration and interdependence between countries through trade, investment, communication and movement of firms. Changes in trade restrictions, transport and communication costs, and multinational-company activity can affect its extent.
Effects can include more trade and competition, migration, changes in income distribution and economic development, and environmental pressure. A home country may gain export access or overseas profits, while some jobs may relocate. A host country may gain investment, jobs, technology and tax revenue, while local firms or the environment may face pressure. Outcomes depend on local supply links, tax arrangements, labour conditions and regulation.
Trade restrictions have aims and costs
Tariffs, quotas, subsidies and embargoes restrict or alter trade. Reasons may include protecting infant or declining industries, strategic supply, preventing dumping, reducing a current-account deficit, raising revenue, restricting demerit goods or supporting environmental aims.
Restrictions can raise domestic prices, reduce choice or invite retaliation, while potentially supporting selected producers or government revenue. Compare the objective with consumers' costs, partner-country effects and whether the measure is temporary and targeted.
Pause and explain
Why might a government protect an infant industry?
Worked example
A government places a tariff on imported solar panels to support local producers. Explain one possible benefit and one trade-off.
Show the worked solution
- The tariff raises the landed cost of imports.
- Local producers may gain demand or time to develop.
- Buyers may pay more and trading partners may respond.
Answer The tariff may protect local producers or support an infant industry, but consumers and firms using panels may face higher prices. Retaliation and the industry's ability to become competitive also matter.
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Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A multinational opens a factory in a host country. Explain one possible benefit and one possible cost for that country.
Give me a hint
Consider employment or investment and the distribution of costs.
Compare my reasoning
- Investment can add capital and create jobs.
- Profits may be sent abroad or local firms may face pressure.
- Wages, taxes, linkages and environmental standards affect the net result.
The factory may bring investment, jobs and skills. Costs could include profit outflows, pressure on local firms or pollution; the outcome depends on local linkages, wages and regulation.
Look for these in your work
- Benefit explained
- Cost explained
- Context factors identified
A tariff raises import prices while a quota limits the number of imported units. Explain one difference in how these tools work.
Give me a hint
Compare a per-unit price charge with a quantity ceiling.
Compare my reasoning
- A tariff is a tax on imports.
- A quota sets a maximum quantity.
- Both can reduce imports but distribute revenue and scarcity differently.
A tariff raises the cost of each import and can generate government revenue. A quota limits quantity and may create scarcity rents for licence holders; both can raise domestic prices.
Look for these in your work
- Tariff mechanism stated
- Quota mechanism stated
- Difference explained
A government restricts imports to promote environmental sustainability. Explain one potential benefit and one risk to evaluate.
Give me a hint
Consider emissions or standards and possible unintended trade effects.
Compare my reasoning
- Restrictions may favour lower-impact domestic production or reduce transport-related imports.
- They may raise prices or shift production to less efficient suppliers.
- Compare measured environmental effects and partner responses.
A restriction may reduce some environmental harm if it changes production or transport, but could raise costs or shift output to less efficient sources. The government needs evidence on lifecycle impact and possible retaliation.
Look for these in your work
- Environmental mechanism stated
- Cost or leakage risk stated
- Evidence specified
Common mistakes
- Treating every multinational company effect as positive or negative
- Assuming a tariff directly guarantees an industry will become efficient
- Confusing a quota with a tariff
What can you explain now?
What is a tariff?
Compare with the explanation
A tax on imported goods
It raises the cost of imports and may produce revenue.
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Make it stick
What is a tariff?
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