Analytical reading: Text A: International trade

International trade takes place within the framework of agreements worked out by
countries in the World Trade Organisation (WTO), formerly known as the General
Agreement on Tariffs and Trade (GATT). Over the last 50 years trade
barriers have been coming down and free trade, open
borders and deregulation now form the ideal for almost all nations, even if the
situation is far from one of complete laisser-faire, with no government intervention.
Protectionism is no longer the order of the day in most places; even if some
developing countries argue that protectionist measures are the way to develop their
economies, they avoid using the term.

Trade negotiations are well-known for their epic eleventh-hour negotiating sessions,
where individual nations argue for what they see as their specific interests and horse-
trade furiously. Countries argue for protection of their strategic industries, ones
they consider vital to future prosperity such as the electronics industry in the
developed world. A less developed country beginning car assembly might want to
protect it as an infant industry with quotas, restrictions on numbers of imported cars.
European farmers argue for their subsidies, where governments guarantee farmers a
higher price than they would normally get, making it hard for developing nations to
compete in markets for agricultural products.

Countries sometimes accuse each other of dumping, where exported goods are sold at
less than in the home market or for less than they cost to produce, usually in order to
gain market share in the export market. The offending country may reply that it has
a comparative advantage in producing these goods, the ability to produce them
cheaper than anyone else, and that they are not selling at below cost.

Of course, there are trading blocks with no trade barriers at all such as the single
market of the European Union. The North American Free Trade
Organisation, or NAFTA, (the US, Canada and Mexico) is also eliminating its tariff
walls and customs duties. Their equivalents in Asia and Latin America
are ASEAN and Mercosur. All this is part of the wider picture of globalisation, the
tendency of the world economy to function as one unit.

One major concern in international trade between smaller companies is payment. The
exporter wants to be sure about getting paid and the importer wants to be sure of
getting the goods. A common solution is the letter of credit, where a bank guarantees
payment to the exporter's bank once it receives the related shipping
documents, including the clean bills of lading, showing the goods have been shipped
without damage or other problems. Shipping terms like CIF, or Carriage insurance
freight, where the exporter pays for insurance of goods while they are being
transported, are part of the standard Incoterms defined by the International
Chamber of Commerce. These terms are used in standard contracts that form the
basis, with adaptations, for most international trade contracts.

Text B: Economic Overview of the United States

Text B: Economic Overview of the United States

The world’s largest economy continues operating at two speeds. On the one hand, a
strong U.S. dollar and lacklustre global demand are weighing on exports, while low
oil prices and rising election uncertainty continue adding pressure on business
investment. On the other hand, a solid labour market, rising real wages and buoyant
consumer confidence are boosting household spending.

Despite facing challenges at the domestic level along with a rapidly transforming
global landscape, the U.S. economy is still the largest and most important in the
world. The U.S. economy represents about 20% of total global output, and is still
larger than that of China. Moreover, according to the IMF, the U.S. has the sixth
highest per capita GDP (PPP), surpassed only by small countries such as Norway and
Singapore. The U.S. economy features a highly-developed and technologically-
advanced services sector, which accounts for about 80% of its output. The U.S.
economy is dominated by services-oriented companies in areas such as technology,
financial services, healthcare and retail. Large U.S. corporations also play a major role
on the global stage, with more than a fifth of companies on the Fortune Global 500
coming from the United States.

Even though the services sector is the main engine of the economy, the U.S. also has
an important manufacturing base, which represents roughly 15% of output. The U.S.
is the second largest manufacturer in the world and a leader in higher-value industries
such as automobiles, aerospace, machinery, telecommunications and chemicals.
Meanwhile, agriculture represents less than 2% of output. However, large amounts of
arable land, advanced farming technology and generous government subsidies make
the U.S. a net exporter of food and the largest agricultural exporting country in the
world.

The U.S. economy maintains its powerhouse status through a combination of

characteristics. The country has access to abundant natural resources and a
sophisticated physical infrastructure. It also has a large, well-educated and productive
workforce. Moreover, the physical and human capital is fully leveraged in a free-
market and business-oriented environment. The government and the people of the
United States both contribute to this unique economic environment. The government
provides political stability, a functional legal system, and a regulatory structure that
allow the economy to flourish. The general population, including a diversity of
immigrants, brings a solid work ethic, as well as a sense of entrepreneurship and risk
taking to the mix. Economic growth in the United States is constantly being driven
forward by ongoing innovation, research and development as well as capital
investment.

The U.S. economy is currently emerging from a period of considerable turmoil. A

mix of factors, including low interest rates, widespread mortgage lending, excessive
risk taking in the financial sector, high consumer indebtedness and lax government
regulation, led to a major recession that began in 2007. The housing market and
several major banks collapsed in 2008 and the U.S. economy proceeded to contract
until the third quarter of 2009 in what was the deepest and longest downturn since the
Great Depression. The U.S. government intervened by using USD 700 billion to
purchase troubled mortgage-related assets and propping up large floundering
corporations in order to stabilize the financial system. It also introduced a stimulus
package worth USD 831 billion to be spent across the following 10 years to boost the
economy.

The economy has been recovering slowly yet unevenly since the depths of the
recession in 2009. The economy has received further support through expansionary
monetary policies. This includes not only holding interest rates at the lower bound,
but also the unconventional practice of the government buying huge amounts of
financial assets to increase the money supply and hold down long-term interest rates
—a practice known as “quantitative easing”.

While the labour market has recovered significantly and employment has returned to
pre-crisis levels, there is still widespread debate regarding the health of the U.S.
economy. In addition, even though the worst effects of the recession are now fading,
the economy still faces a variety of significant challenges going forward.
Deteriorating infrastructure, wage stagnation, rising income inequality, elevated
pension and medical costs, as well as large current account and government budget
deficits, are all issues on the radar.

Current situation in 2021

GDP growth has likely lost some momentum in the third quarter, after accelerating
slightly in Q2 on the back of stronger private consumption and rebounding exports. In
August, the Chicago Fed National Activity Index—a leading indicator for GDP—
moderated notably from July due to weaker industrial output and private consumption
activity. Moreover, consumer confidence dropped to its lowest level since February in
August, while the increase in nonfarm payrolls eased notably in the same month and
average retail sales declined in July–August—all further pointing to a slowdown in
private consumption in the quarter. Furthermore, despite remaining upbeat in July–
August, the ISM manufacturing PMI was below Q2’s average. On the Covid-19 front,
daily new cases of the virus have remained elevated in recent weeks, despite solid
vaccination progress, which is likely dampening GDP prospects for Q4.

GDP will expand rapidly this year as the impact of the pandemic fades and the labor
market recovers. In 2022, growth should moderate on a less favorable base effect, but
recovering household consumption and pent-up demand will likely keep momentum
upbeat nonetheless. Uncertainty over new Covid-19 variants and ongoing tense
relations with China pose downside risks. Focus Economics panelists see GDP
growing 6.1% in 2021. In 2022, our panel sees the economy expanding 4.1%, which
is unchanged from the previous month’s forecast.

onomic Overview of the United Kingdom

Text C: Economic Overview of the United Kingdom
Today, the UK is the 6th largest economy in the world in 2012 according to GDP
(current prices) and the 8th largest in the world according to GDP (PPP). The UK
is also a member of the G7 (now expanding to the G8 and G20), the EU and the
OECD (Organisation for Economic Cooperation and Development).

The United Kingdom’s economic freedom score is 78.9, making its economy the 7th
freest in the 2019 Index. Its overall score has increased by 0.9 point, with a big jump
in fiscal health and higher scores for government integrity and government spending
outweighing sharp drops in judicial effectiveness and monetary freedom. The U.K. is
ranked 3rd among 44 countries in the Europe region, and its overall score is above the
regional and world averages.

Although the UK economy faced another major setback during the 2008 global
financial crisis, the UK government has implemented austerity measures in order to
reduce its global debt as well as facilitate for long-term economic growth. These plan
aims to lower London's budget deficit from over 11 percent of GDP in 2010 to nearly
1 percent by 2015. However this has since been revised by the government to 2018.

Despite only contributing 0.7 percent of UK’s GDP in 2012, Agriculture is still
considered an important part of the UK’s economy and society as it produces 60
percent of the UK’s food needs. Agriculture in the UK is highly mechanised and
efficient, combining advanced technology with modern farming techniques.
Agriculture in the UK is also highly subsidised, both by the UK government and the
EU’s Common Agricultural Policy.
Industries were responsible for 21.1 percent of UK’s GDP in 2012. The list of
industries include machine tools, electric power equipment, automation equipment,
railroad equipment, shipbuilding, aircraft, motor vehicles and parts, electronics and
communications equipment, metals, chemicals, coal, petroleum, paper and paper
products, food processing, textiles, clothing, and other consumer goods.

Manufacturing of goods is particularly important for UK industries. The UK is the

sixth-largest manufacturer of goods in the world according to the value of its outputs.
Within manufacturing, the production of automotive or aerospace equipment is a
major contributor to UK industries. UK’s aerospace industry is the second largest in
the world with companies such as BAE Systems (the world’s second largest defense
contractor), and Rolls-Royce (the world’s second largest aircraft engine maker)
boasting annual turnovers of around £20 billion.

Great Britain is one of the world's leading industrialized nations. It has achieved this
position despite the lack of most raw materials needed for industry. It must also
import 40% of its food supplies. Thus, its prosperity has been dependent upon the
export of manufactured goods in exchange for raw materials and foodstuffs. Within
the manufacturing sector, the largest industries include machine tools; electric power,
automation, and railroad equipment; ships; aircraft; motor vehicles and parts;
electronic and communications equipment; metals; chemicals; coal; petroleum; paper
and printing; food processing; textiles; and clothing.

However, despite the historical importance of agriculture and industries, services is

the dominant component of UK’s economy, contributing to 77.2 percent of the
nation’s GDP. Finance and banking are by far the UK’s most important services with
London being one of the three major economic “command centres” alongside New
York City and Tokyo. Important financial institutions located within London include
the London Stock Exchange, the London International Financial Futures and Options
Exchange, the London Metal Exchange, Lloyds of London, and the Bank of England.

The country's chief exports are manufactured goods, fuels, chemicals, food and
beverages, and tobacco. The chief imports are manufactured goods, machinery, fuels,
and foodstuffs. Since the early 1970s, Great Britain's trade focus has shifted from the
United States to the European Union, which now accounts for over 50% of its trade.
The United States, Germany, France, and the Netherlands are the main trading
partners, and the Commonwealth countries are also important.

Current situation in 2021

After the economy rebounded healthily in Q2, momentum appears to have slowed in
Q3, despite the removal of virtually all Covid-19 restrictions from July. GDP growth
eased to a six-month low in July amid flatlining output in the services sector, while
retail sales volumes fell in July and August in a sign of weaker consumer spending
amid slumping sentiment. Moreover, PMI readings for both the manufacturing and
services sectors continued their downward trend through Q3, each hitting seven-
month lows in September as a result of self-isolation rules, spiking energy prices,
global supply chain tensions and the impact of Brexit on the stock of EU workers.
More positively, however, the labor market has continued to strengthen, with August
seeing a solid increase in employment and record job vacancies.

The economy will rebound strongly this year, before growth moderates somewhat in
2022. A sharp decrease in public spending growth will drive the slowdown, offsetting
a pickup in consumer and capital spending. New Covid-19 variants, supply
constraints, tense relations with the EU and disruption as the UK adapts to its new
trade agreement with the bloc pose downside risks. Focus Economics panelists expect
the economy to expand 6.6% in 2021 and 5.4% in 2022, which is down 0.1
percentage points from last month’s forecast.