HookThe day Marmite disappeared from Tesco
On 13 October 2016, Marmite vanished from Tesco's website. Unilever had demanded a roughly 10% wholesale price rise across its range — Pot Noodle, PG Tips, Ben & Jerry's — blaming the pound, which had dropped about 18% against the dollar since the Brexit referendum on 23 June. Tesco refused to pay, pulled the products, and for roughly twenty-four hours Britain contemplated life without yeast extract before the two giants settled.
The awkward detail: Marmite is brewed in Burton upon Trent, from British brewers' yeast. Why should sterling's slide reprice a jar that never crosses a border? Because Unilever is a multinational that reports in euros, prices across a global portfolio, and buys packaging, energy and ingredients on world markets. That one spat contains the whole of 3.1: growth abroad changes who buys, trade changes who makes, blocs and policy change the rules, and the exchange rate changes every price in the chain — even the price of Marmite.
ModelGrowing economies — the centre of gravity moves east
In 1990 China produced somewhere around 3% of the world's manufacturing output; today the figure is close to 30% — more than the United States, Japan and Germany combined. Chinese GDP grew at roughly 10% a year for the three decades after the 1978 reforms; India has averaged about 6–7% since liberalising in 1991. Compounding at those rates rearranges the world: the rule of 70 says an economy growing at 7% doubles in size roughly every ten years (70 ÷ 7).
For UK firms this cuts both ways. Growing economies are new customers — China has at times been Jaguar Land Rover's largest single market, and premium Scotch, Burberry trench coats and Premier League broadcast rights all sell into the same rising Asian middle class. But they are also new competitors: BYD, a Shenzhen carmaker most Britons had not heard of in 2015, overtook Tesla in battery-electric car sales in late 2023.
Judge growth with more than headline GDP. Use GDP per capita to compare living standards, and the Human Development Index — income, schooling, life expectancy — to catch what GDP misses: Qatar out-earns Norway per head, but Norway out-develops Qatar.
ModelTrade and growth — why open economies get rich
The engine underneath is specialisation. Comparative advantage says countries gain by producing what they give up least to make, then trading — even a country worse at everything gains by specialising where its disadvantage is smallest. In 1960 South Korea's income per head was broadly comparable to Ghana's; South Korea bet on export-led growth — ships, steel, then semiconductors — and today its citizens are roughly fifteen times richer. No country has grown rich in the modern era while closed to trade.
The enabling technology was embarrassingly humble: the shipping container, first sailed commercially by Malcom McLean in 1956. Moving a shirt from a Dhaka factory to a Felixstowe warehouse now costs pennies, and world trade has grown from roughly a quarter of global GDP in 1970 to well over half today. The UK is unusually exposed: exports plus imports run at around 60% of GDP, roughly double the American figure.
But gains from trade are averages, not guarantees. Cheap imports raised real incomes for every UK shopper while hollowing out specific places — Stoke's potteries, Dundee's jute mills — which is why trade policy is politics, not just economics.
MechanismTrading blocs — free trade, for members only
Blocs come in ascending depth. A free trade area removes tariffs between members but leaves each free to set its own external tariff (USMCA, the renamed NAFTA). A customs union adds a common external tariff, which is why members cannot sign independent trade deals — the choice that dominated the Brexit negotiations. A single market goes furthest: the EU's version covers roughly 450 million consumers and adds free movement of services, capital and labour plus shared regulation, so a product approved in Warsaw sells in Wigan with no further checks.
Economists score blocs on trade creation (cheap imports from members replace dearer domestic output — a gain) versus trade diversion (imports from members replace cheaper non-member imports because the external tariff distorts the choice — a loss).
Brexit is the live case study. The 2021 Trade and Cooperation Agreement kept zero tariffs and zero quotas, but leaving the single market restored non-tariff barriers — rules-of-origin paperwork, veterinary checks — and the OBR's standing estimate is a long-run productivity hit of around 4% versus remaining. Non-tariff barriers, it turns out, were most of the point.
MechanismTrade policy — tariffs, quotas and who actually pays
The protectionist toolkit: tariffs (taxes on imports), quotas (quantity limits), subsidies to domestic producers, and non-tariff barriers ranging from safety standards to deliberately slow customs. The World Trade Organization (founded 1995, 160-plus members) referees: members must offer their best 'most-favoured nation' terms to all, unless a formal trading bloc carves out deeper preferences.
Governments protect for reasons the spec expects you to list and weigh: shielding infant industries until they reach scale, blocking dumping (selling below cost to kill rivals), protecting strategic capacity (food, steel, semiconductors), saving jobs in politically sensitive regions — and simple retaliation.
The US–China trade war of 2018–19 put price tags on all of this. Washington levied tariffs covering roughly $360bn of Chinese goods; Beijing retaliated on about $110bn of American exports. Studies, including work by the New York Fed, found the tariff cost fell almost entirely on American importers and consumers — several hundred dollars per household per year — while targeted trade simply rerouted through Vietnam and Mexico. Tariffs are collected at your own border: that is the single most examinable fact about them.
ModelExchange rate changes — SPICED, and the two-sided coin
A floating exchange rate is just a price — the price of pounds in foreign currency — set by demand and supply. When the pound appreciates, remember SPICED: Strong Pound, Imports Cheaper, Exports Dearer. Depreciation reverses every letter: exporters gain price competitiveness or fatter margins, importers face higher costs, and consumers meet imported inflation on the shelf — the Marmite mechanism.
Who wins depends on exposure. A Cotswolds hotelier selling breaks to American tourists loves a weak pound; a retailer buying stock in dollars dreads it. Big firms hedge with forward contracts, which delays rather than deletes the effect — one reason the 2016 depreciation took over a year to fully reach shop prices, with CPI inflation peaking at about 3.1% in late 2017.
Elasticity then decides how much a depreciation helps: if foreign demand for your exports is price-inelastic, cutting the dollar price wins few extra sales — better to hold the price and bank the margin.
Sterling fell from about $1.50 on referendum day in June 2016 to about $1.22 by October — a drop of roughly 19%. Work both directions. A Speyside distillery sells whisky in New York at $60 a case. At $1.50 that repatriates £40.00 a case; at $1.22 it repatriates $60 ÷ 1.22 = £49.18 — revenue up 23% per case without selling one extra bottle, or room to cut the dollar price and win share. Now the importer: a UK electronics retailer with a $500,000 order from a US supplier paid £333,333 at $1.50 (500,000 ÷ 1.50); at $1.22 the same order costs £409,836 — £76,503 more, a 23% cost rise it must absorb, hedge or pass on. Same currency move, opposite fortunes — which is exactly why Unilever and Tesco went to war in October 2016.
VocabularyKey terms the mark scheme pays for
TrapsMisconceptions that cost marks
ExamWhat examiners want
Theme 3 anchors Paper 3, The global economy, which is built around data extracts — so every point you make should be quantified the way the extracts are. 'The pound fell' is level 1; 'sterling depreciated roughly 19% against the dollar between June and October 2016, raising import costs for retailers like Tesco' is application. Learn three or four anchor numbers per leaf (China near 30% of world manufacturing, UK trade around 60% of GDP, the TCA in 2021, tariffs on $360bn of Chinese goods) and deploy them.
On exchange-rate questions, always argue BOTH sides of the currency move — exporter and importer — then evaluate with elasticity, time lags and hedging. On blocs and policy, the examiner's favourite discriminators are trade creation versus diversion, and the incidence of tariffs: candidates who show that domestic consumers pay them are the ones who reach the top level.