4.1.3 Pattern of trade Flashcards
What is the geographical pattern of trade?
- These are the countries with whom businesses and people trade
Explain the geographical pattern of trade in the UK
- The EU, taken as a whole is the UK’s largest trading partner. In 2018, UK exports to the EU were £289 billion
(46% of all UK exports). UK imports from the EU were £345 billion (54% of all UK imports). - The EU’s share of UK exports has been falling in recent years: in 1999, the EU’s share was nearly 55%. The UK’s
biggest single trade partner is the United States. - China now accounts for over 7% of UK imports compared with 1.5% in 1999 and is the UK’s fourth largest
source of imports. China is the UK’s sixth largest export market.
What is the Gravity theory of trade?
Despite decades of globalisation, most trade happens between neighbouring countries. Trade flows within regions,
such as the European Union, are far greater than trade flows between regions or continents. The UK, for instance, currently exports about 50% more to Ireland than it does to China.
What are the factors behind the gravity theory of trade?
- Businesses trade more in markets that are in close geographical proximity and with a big market size
- Shared borders help facilitate high levels of trade and labour mobility especially in a single market
- Shared language and a single currency cut the cost of trade contracts and market transactions
- Similar consumer preferences encourage firms to compete on the basis of the strength of their product brands
- Countries at similar stages of development will have over-lapping capabilities, allowing businesses to trade a
range of connected products
What is the commodity pattern of trade?
- This is the type of products (i.e. goods and services) that are traded internationally
- We can see the extent that a country has a dependence on primary v manufactured v service exports
- Many less economically developed countries rely heavily on primary product exports
Give examples of Some less developed countries that have a high level of primary product dependency
- Angola: 89% of exports is crude petroleum (oil), 8% is diamonds
- Ethiopia: 25% of exports is coffee
- Zambia: 80% of exports is raw copper, refined copper and cobalt
- Kenya: 23% of exports is tea and 14% cut flowers
How does the pattern of trade change?
The pattern of trade changes as countries move through different stages of development. As a nation develops increasing complexity and more capabilities, then they become capable of supplying and then exporting a broader range of products within the global economy
Explain trade in goods
Goods exported and imported include tangible manufactured products such as cars, components for aircraft,
processed food and drink, chemicals, pharmaceuticals, steel and computer equipment. Over 70 per cent of
merchandise exports (globally) are manufactured goods
The top three merchandise traders were China, the United States and Germany in 2017
Explain trade in services
Heavily traded services include transportation (freight and passengers), tourism, health and education services,
financial services such as foreign exchange dealing and a huge range of business services such as accountancy,
consultancy, design and marketing.
What are 7 factors affecting comparative advantage?
- The quantity and quality of natural resources available e.g. the discovery of new mineral reserves
- Demographics – factors such as an ageing population, net migration, women’s participation in the labour
force - Rates of new capital investment including infrastructure spending
- Investment in research and development (R&D) which can drive business innovation
- Fluctuations in the exchange rate which then affect the relative prices of exports and imports
- Import controls such as tariffs, export subsidies and quotas used to create an artificial comparative advantage
- Non-price competitiveness – e.g. product design, innovation, product reliability, branding, technical
standards.
What is an emerging economy?
An emerging economy is one that can’t yet be classified as ‘developed’, and is investing heavily in its productive
capacity. The 4 largest emerging economies (in terms of GDP at PPP) are still the BRICs, that is, Brazil, Russia, India and China.
Explain how emerging economies can impact on trade patterns
- Rising income means that they start to purchase more goods/services from elsewhere in the world, over and
above basic necessities e.g. demand for imported milk in China
o This can also include increasing imports of commodities, which can push up prices of commodities
for others - Attract MNC activity, as well as grow their own large companies which start to operate elsewhere in the world:
o Examples include: Huawei and China Construction Bank from China, Tata from India, Lukoil from
Russia, and Petrobas from Brazil - Selling more medium to high value exports e.g. manufactured items and electronics, rather than commodities
or low-value-added items - Currency volatility in emerging markets can have a large impact on commodity prices and raw material prices
in other countries - Rising tension between developed economies e.g. US and emerging economies e.g. China, resulting in trade
wars / protectionist measures, as each country seeks a bigger slice of the world trading pie
What is a trade bloc?
A trade bloc consists of a number of countries that agree to trade with each other with reduced or no trade barriers
(such as tariffs or quotas)
Explain the types of trade blocs
- Preferential trade area – there is reduced protectionism on a number of select goods/services amongst the
countries involved
o This could just be between 2 countries i.e. bilateral - Free trade area – there is completely free trade between the countries involved, but each country can set
their own trade restrictions on countries outside of the agreement
o Examples include USMCA and EFTA - Customs Union – there is completely free trade between the countries involved and they all agree to impose
the same trade restrictions on other countries as each other
o Examples include MERCOSUR (S America) and Turkey’s relationship with the EU
What is an impact of the increase in the number and strength of trading blocs on global trading patterns?
One key impact of the increase in the number and strength of trading blocs on global trading patterns is that they
often lead to more intra-regional trade (i.e. within the trade bloc itself) and less inter-regional trade (i.e. trade between
region / blocs). This may mean that countries do not always gain the benefits from specialising according to their comparative advantage. There may be trade creation at the expense of trade diversion
