4.1.3: Pattern of Trade

Question 1

What are the factors that influence patterns of trade?

Answer 1

• Comparative Advantage
• Emerging Economies
• Trading blocs and bilateral trading agreements
• Relative exchange rates

Question 2

How does comparative advantage affect patterns of trade/

Answer 2

• Countries trade where there is a comparative advantage to trading, a change in it, will affect a country’s trading pattern
• As firms aim to profit maximise, if it makes sense to increase production due to natural advantages, firms do.
• Example: There has been a recent growth in exports of manufactured goods, due to advantages in production such as lower labour costs, causing production to shift abroad.
• The deindustrialisation of countries like the UK has caused manufactured sector to other countries such as China and India

Question 3

How do emerging economies affect patterns of trade?

Answer 3

• Emerging economies shift the trade pattern by taking up a larger proportion of a country’s imports and exports than they had previously.
• Example: China
• International trade is arguably more important for developing countries than developed countries: it contributes towards 20% of LDC 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 4

How does trading blocs and bilateral trading agreements affect patterns of trade?

Answer 4

• These increase the level of trade between certain counties and so influence the pattern of trade because trade increases between these countries and decreases between others.
• Example: Joining the EU meant that the UK traded a lot more with European countries than previously and less with countries outside the EU

Question 5

How do relative exchange rates affect patterns of trade?

Answer 5

• Exchange rates affects the relative prices of goods between countries.
• Prices can determine whether consumers buy goods, therefore changes of price can affect the demand for goods and in turn, patterns of trade.
• Example: Some argue that the UK’s trade deficit with Europe is due to the strength of the pound.
• China has kept their currency weak in order to increase their trade surplus by making exports more competitive.