7.8 Trade Networks

Interdependence in global trade

Countries specialize in producing goods they can make most efficiently, creating economic interdependence. This specialization relies on comparative advantage — producing what you can make relatively cheaper than others — and complementarity, where one region's surplus meets another's demand. Trade networks connect production and consumption across borders.

Trade agreements & blocs

Nations form trade agreements and trade blocs (like the EU, NAFTA/USMCA, ASEAN) to reduce tariffs and barriers, boosting trade volume. Supranational organizations such as the WTO regulate trade rules globally. These structures reflect the shift from protectionism toward free trade policies in the modern world economy.

Uneven benefits & dependency

Trade networks don't always benefit all participants equally. Dependency theory argues peripheral countries remain reliant on core countries for capital and technology, exporting raw materials while importing finished goods. Global supply chains and outsourcing link production across the world but can reinforce core-periphery inequalities within world systems theory.

Key terms

Comparative advantage

Producing a good relatively more efficiently than other countries, encouraging specialization and trade.

Complementarity

When a surplus of goods in one region matches demand in another, facilitating trade.

Trade bloc

A group of countries that reduces tariffs/barriers among members (e.g., EU, USMCA, ASEAN).

World Trade Organization (WTO)

A supranational organization that regulates and enforces international trade rules.

Dependency theory

Theory that peripheral countries remain reliant on core countries, exporting raw materials and importing finished goods.

Try an AP-style question

Export processing zones (EPZs) offer…

1. higher tariffs
2. restrictions on trade
3. tax breaks for export production
4. import bans