As one of the components of aggregate demand, net exports is a key variable that can create jobs and growth in an economy, and it is this variable that is being directly targeted in a trade agreement between the UK and South Korea. Growth in developing countries is far outstripping that in the West and through this trade deal, the UK is hoping to benefit from some of this growth – to the tune of about £500m per year.
South Korea already trades a huge amount with the UK – we are its second largest European trade partner after Germany. The Free Trade Area that has been agreed will put British firms in a stronger position when negotiating contracts, especially in relation to sporting events, such as the Asian Games in 2014, the World Student Games in 2015 and the Pyeongchang Winter Olympics in 2018. Nick Clegg, who announced the agreement said:
‘The best of British design, innovation and services will have even greater opportunity to show their strength in South Korea. UK and Korean companies will be able to form alliances on multi-billion pound projects across the world.’
Some of the benefits of this agreement may be seen relatively soon, as the South Korea National Pension Service has announced plans to set up a base in London, which would create a much need injection of investment into the stagnant economy. This latest trade deal is very much a part of the Coalition’s strategy of creating stronger ties and trade links to the fast growing emerging markets. The size of these potential benefits and the speed with which they emerge can only be estimated, but if they do materialise they will undoubtedly have positive effects on economic growth. The following articles consider these ‘economic opportunities in the UK’.
Nick Clegg hails Korean trade deal as £2bn opportunity for Britain Telegraph, Anna White (25/3/12)
South Korea trade deal ‘may bring £500m to UK economy’ BBC News (26/3/12)
South Korea’s $320bn pension fund to set up London base Guardian (26/3/12)
S Korea pension fund to set up London office Financial Times, Elizabeth Rigby (25/3/12)
Nick Clegg boosts British business in South Korea The Economic Voice, Jeff Taylor (26/3/12)
- What are the benefits and costs of trade? To whom do they accrue?
- The articles talk about a free trade area. What are the characteristics of such an agreement?
- What other types of trade agreement are there? In each case, find examples of that type of agreement.
- Why is trade seen as an engine of growth? Think about aggregate demand and how this can explain a boost to national income.
- If the South Korea National Pension Service does create a base in London, explain how the multiplier effect might create additional benefits to the UK.