A trading bloc is formed between a group of nations that
think the reduction or elimination of restrictions and tariff in trade between them
would benefit their economies.
The participants of a trade
bloc like NAFTA, MERCOSUR, etc. allow cross- border flow of products with very few
restrictions.
The free movement of products encourages
efficiency and allows each nation to use its absolute and comparative advantages to the
maximum extent. Customers are able to get products at better prices and companies are
able to make higher profits by sourcing their resources from where it is available at
the lowest prices.
Disadvantages of trading blocs are in
the form of a movement of funds to encourage job formation in nations where labor is the
cheapest. This reduces the number of jobs in nations where labor is more costly and
encourages outsourcing to other nations of the trading bloc.
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