AQA GCSE · Question 22 · How the economy works

Item A
The UK left the European Union (EU) in 2020. Economists have been worried about how this will affect the UK economy.

Within the EU, the UK benefitted from free trade with other EU economies. Foreign trade significantly benefits the UK economy, contributing almost 30% to the UK's Gross Domestic Product (GDP). The ability to sell goods and services outside of the UK allows UK businesses to access wider markets. As shown in Table 5, total UK exports (to EU and non-EU economies) were over £500 billion in 2016 and have risen over the period 2016-2019.

However, some groups of people believe that the free trade the UK has participated in while a member of the EU has proven harmful. Foreign trade, whilst generating many benefits, may also generate disadvantages for the UK economy. For example, now the UK is outside the EU it is believed that smaller UK businesses will face less competition from other EU businesses who have lower production costs. There will still be competition from low-cost producers outside the EU, but these businesses may not always be able to compete efficiently with UK producers due to other reasons.

Despite no longer being an EU member, the UK has signed a free trade deal with the EU on trade in goods, but not in services. The UK government is also keen to create more free trade deals with other countries. It is believed that the UK government would like to sign a free trade deal with the USA, but there are concerns from many in the UK that this would lead to a rise in cheaper imports of goods that some people think are not desirable, such as chlorinated chicken.

Table 5

UK trade with EU economies	Exports (£ bn)	Imports (£ bn)
2016	245.6	318.8
2017	278.0	347.9
2018	298.3	366.3
2019	294.3	373.5

UK trade with non-EU economies	Exports (£ bn)	Imports (£ bn)
2016	317.6	280.5
2017	344.9	305.7
2018	363.3	320.8
2019	396.5	347.8

Item B
Globalisation has affected all countries across the world – both developed and less economically developed countries. Developed countries have benefitted from globalisation by businesses from these countries being able to sell goods and services to many more people across the world. People in less economically developed countries have also benefitted from the job creation that has followed the locating of multinational companies (MNCs) within these countries as part of increased globalisation.

MNCs are very large when measured in terms of their own sales revenue. Some MNCs generate more income than the GDP of many individual countries. This means governments in less economically developed countries often want to attract MNCs to their countries. However, MNCs and increased globalisation do not always generate the benefits for the less economically developed countries that was hoped for by these governments. For example, a significant proportion of the tax revenue created by the MNCs' activities is often not paid to the government in these countries. This is because the MNCs use tax avoidance schemes that are viewed by some as unethical, but these schemes are usually legal.

Table 6

Multinational companies	Revenue (in US$ billions)
Walmart	599
Amazon	386
Royal Dutch Shell	344
Apple	294
Volkswagen	282

Country	GDP (in US$ billions)
United Kingdom	2638
Ireland	399
Bangladesh	318
Vietnam	341
Malaysia	336

Define the term 'free trade'.