6.2 Globalisation, Free Trade and Protection

2026 Syllabus Objectives

By the end of this topic, you should be able to:

  • 6.2.1 Define globalisation
  • 6.2.2 Explain the role of multinational companies (MNCs) and their costs and benefits to home and host countries
  • 6.2.3 Explain the benefits of free trade for consumers, producers, and the economy
  • 6.2.4 Describe the methods of protection: tariffs, import quotas, subsidies, and embargoes
  • 6.2.5 Explain the reasons for protection, including infant industry, declining industry, strategic industry, and avoidance of dumping
  • 6.2.6 Evaluate the consequences of protection for the home country and its trading partners

6.2.1 What is Globalisation?

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Globalisation is the process by which the world is becoming increasingly connected through trade, communication, and other links. Think of it this way: 50 years ago, most people bought goods made in their own country. Today, your phone might be designed in the USA, assembled in China, using parts from South Korea — and delivered to you in Pakistan. That is globalisation in action.

Why Has Globalisation Increased?

Several key factors have made globalisation grow:

  • Lower transport costs — The invention of containerisation (large, standard-sized metal boxes that fit perfectly onto ships, trains, and trucks) made it much cheaper and faster to move goods around the world. Bigger, more efficient ships and aeroplanes also helped.
  • Lower communication costs — The internet, mobile phones, and digital platforms mean that a manager in London can instantly contact a factory in Vietnam. This makes it easy to run businesses across multiple countries.
  • Reduction in trade barriers — Many governments have reduced tariffs (taxes on imports) and quotas (limits on imports), making it easier for countries to trade with each other.
  • Growth of multinational companies (MNCs) — Large companies have expanded to operate in many countries, spreading economic activity globally.

6.2.2 Multinational Companies (MNCs)

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A multinational company (MNC) is a large business that has its headquarters (main office) in one country but operates factories, branches, or offices in two or more other countries. Examples include Toyota, Shell, Apple, and Standard Chartered.

  • The country where the MNC originally comes from is called the home country.
  • The country where the MNC sets up its operations is called the host country.

Advantages and Disadvantages of MNCs

For the Home Country (where the MNC comes from):

AdvantagesDisadvantages
MNCs earn profits from abroad and bring money back home, boosting the home economySome jobs move abroad where labour is cheaper, causing unemployment at home
Home country businesses grow bigger by accessing new markets overseasMNCs may face criticism if they allow poor working conditions in other countries
MNCs can produce goods more cheaply abroad and sell them at lower prices at homeMNCs may pressure the home government for favourable rules that suit them

For the Host Country (where the MNC operates):

AdvantagesDisadvantages
MNCs create jobs and reduce unemployment; they also train workers, improving their skillsLocal businesses may struggle because MNCs are financially and technologically stronger
The government earns tax revenue (money from taxing MNC profits)MNCs may exploit the country's natural resources to keep costs low
Living standards improve as people have access to better products and more choiceProfits are often sent back to the home country (profit repatriation), so the host country loses some of the money generated
MNCs create competition that pushes local firms to improve their qualityMNCs may pressure the host government to relax rules and regulations in their favour
MNCs help the country grow economically by investing in infrastructureIf the MNC decides to leave, many people could suddenly lose their jobs

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