4.1.3 Pattern Of Trade

Question 1

Pattern of trade context

Answer 1

The UK used to be the ‘workshop of the world’, exporting huge amounts of goods but the 1970s and 1980s saw a process of deindustrialisation with exports of services becoming increasingly important. The UK’s entry to the EU led to an increase in trade with Europe, and therefore their withdrawal from the EU (Brexit) made trade harder due to new restrictions (protectionism).

Question 2

Factors influencing the pattern of trade between countries

Answer 2

1) Comparative advantage
2) Emerging economies
3) Trading blocs and bilateral trading agreements
4) Relative exchange rates

Question 3

Comparative advantage: influencing the pattern of trade between countries

Answer 3

Countries will trade where there is a comparative advantage:
- change in the comp adv will affect the trade pattern
- there has been a recent growth in the exports of manufactured goods from developing countries to developed countries; this is because developing countries have gained an advantage in the production of manufactured goods due to their lower labour costs, so production shifted abroad
- the deindustrialisation of countries e.g. UK has meant the manufacturing sector has declined, meaning production of manufactured goods has shifted to other countries e.g. China whilst the UK now focuses more on services e.g. finance
- this has led to the industrialisation of China and India; their share of world trade has risen and the volume of manufactured goods that they export increased. However, since China’s population is now ageing, their wage competitiveness has fallen; this is also due to the rise of the middle class in China, who demand higher wages and consume more

Question 4

Emerging economies: influencing the pattern of trade between countries

Answer 4

Countries grow at different rates and when they grow they are likely to need to import more goods and services than before and export more to pay for this:
- emerging economies shift the trade pattern by taking up a larger proportion of a country’s imports and exports e.g. China.
- international trade is arguably more important for developing countries than developed countries: it contributes towards 20% of LDC (low development countries) economies compared to 8% of the US economy
- the collapse of communism has meant that more countries, especially developing countries, are participating in world trade

Question 5

Trading blocs and bilateral trading agreements: influencing the pattern of trade between countries

Answer 5

These increase the level of trade between certain countries and so influence the pattern of trade because trade increases between these countries and decreases between others
- joining the EU meant that the UK traded a lot more with European countries than previously, and less with countries outside the EU as there were restrictions to doing so

Question 6

Relative exchange rates: influencing the pattern of trade between countries

Answer 6

The exchange rate affects the relative prices of goods between countries
- prices are an important factor in determining whether consumers buy goods and so a change in price will affect the pattern of trade
- it can be argued that the UK’s trade deficit with Europe is due to the strength of the pound
- China have kept their currency weak in order to increase their trade surplus by making exports more competitive (cheaper)