The Formation of Economic Trading Blocs
- besociety
- Feb 13
- 5 min read
Formal Economic Blocs are groups of nations that come to form legal agreements with the purpose to create freer trade, more efficient markets and the build cooperation between countries involved. There are several across the world with the most influential and main ones being the European Union which has several layers to it and includes most European Countries, the BRICS Nations which aims to give its members more global influence and the NAFTA which main purpose is to lower barriers to trade between North American counties through the likes of reduced tariffs. Although each of these Blocs come with their advantages, they have experienced turbulence in recent years such as the United Kingdom leaving the EU and Trumps determination on increasing tariffs to bring manufacturing back to America. This article will discuss the rise, effects and challenges of Economic Blocs.
Today there are three major economic blocs, first came the EU, founded in 1951 it was originally the European Coal and Steel Community with founding members being France, Italy, West Germany and Belgium, Netherlands and Luxembourg. Its aim was to stop war in Europe by integrating each country means of producing coal and steel with authority coming from an external governing body. In 1957 the Community reformed to become the European Economic Council which later expanded in the 1970s to include the likes of the UK, Ireland and Denmark. In the 1990’s the EU announced that they would be introducing a single currency to go along with their single market, it was put in place in two stages 1999 they introduced the currency for electronic payments then in 2001 the Union issued proper tangible bank notes. Despite the currency being introduced across the EU there were several countries that decided not to adopt the currency, an example being the UK. This benefited the UK for several years and through two major crises’, one during the financial crisis of 2008 where although both the currencies were weakened the pound remained stronger due to its ties to the dollar and second during the eurozone crisis in 2009 when slow economic growth led to investors viewing the UK as a safe haven for assets. Since Brexit however the EU’s currency has gained some ground on the pound and countries within the EU such as Poland are being viewed as places that are attractive to invest in rather than the UK.
Unlike the EU, BRICS was not established to reduce the risk of war. The term originally came from House of Commons member Jim O’Neil in 2001 who was an economist for Goldman Sachs at the time who noted in a paper that Brazil, Russia, India and China were becoming growing world powers. In 2009 the countries had their first official meeting in Yekaterinburg, the summit was spurred on by the financial crisis that came in 2008 which was at the centre of discussions along with global economic reforms. In 2010 the second summit was held in the capital of Brazil where the nations put forward cooperation mechanisms along with supporting other offshoot conferences such as the BRIC entrepreneur forum, the BRIC inter-bank cooperation mechanism and the think-tank forum. Since then, the BRIC have expanded, first off in 2010 with the addition of South Africa adding the ‘S’ to the BRICS acronym and latest in 2024 with the addition of Egypt, Iran, Ethiopia and the UAE. One of the main successes of the BRICS has been the New Development Bank, this fund was set up by the BRICS to support infrastructure projects across developing countries an example being the Greenhouse Gas Emissions Reduction and Energy Sector Development Project in South Africa. A project which aims to help South Africa reach net zero.
There are several benefits of economic trading blocs to countries that are members of them. One being increased trade, this comes from joint legislation within regional areas that encourage trade such as reduced tariffs for members. This can make businesses that operate within the trade bloc more competitive due to their ability to access larger markets at a lower cost. A tariff impacts the profits made off of a good meaning that companies must push prices higher to make larger profits, reducing that tariff or scraping it all together can lead to lower prices for consumers and wider accessibility for businesses to reach other markets provided they are operating within a member country. A key example of this can be seen with Poland, before joining the EU in 2004 their exports to the EU was €45 billion, after it grew to over €200 billion.
Another benefit of trading blocs is that they normally bring in more Foreign Direct Investment into a country. This is a consequence of new markets being opened to businesses in the country and therefor more opportunity coming into the country. An added benefit of this is that more FDI can lead to more job opportunity for those both low and high skilled this comes as being in the trading bloc can encourage businesses from abroad, operating in countries out with the trading bloc to move to the new member country as the cost of setting up may be less than it would be in a country that already has a strong economy, the new member may have a weaker economy and therefor more opportunity to grow and to sell on to larger economies at a now reduced barrier to entry.
Although there are definitely economic benefits to being a member of an Economic Bloc it is not without its drawbacks, particularly in the EU. One criticism of the European Union is that if you want to join you must conform with the EU’s own rules. This was one of the reasons for the UK voting for Brexit, one requirement of the EU is that if you are a member you must contribute to the Budget, this means that some countries that drag others along. This can be seen as it’s reported that in 2023 the largest net contributors were Germany, France, Italy and Spain contributing a combined €99.2 billion whereas the likes of Malta, Cyprus and Estonia where among those that took more than they contributed. This shows the drawbacks of Trading Blocs as there may be certain regulations that put countries at a disadvantage like financially supporting smaller economies that struggle to grow on their own instead of spending it on things in their own country such as infrastructure projects.
In conclusion there are several reasons to why Economic Trading Blocs develop, the EU has its roots in coal and steel production and aiming to prevent the outbreak of war across Europe for a third time and the BRICS came from several emerging powers coming together after the 2008 Global Financial Crisis, each of these examples have expanded to include more than just there original founding members. The benefits of trading blocs can be seen through initiatives such as the New Development Bank and the European free market although they sometimes come at the expense of surrendering some forms of sovereignty.
Written by - Finn Crowley
Position - Social Secretary
Date - 08/02/2026
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