1f. Patterns of trade

What affects the pattern of trade

The growth of BRIC countries

• The growth of BRICs means they now make up a much larger percentage of world trade

• Their export-led growth strategy has led to the creation of large current account surpluses for them but current account deficits for countries like the USA and UK

Changes in comparative advantage

• The UK used to have a comparative advantage in manufactured goods but globalisation has led to outsourcing to developing countries with lower wages, meaning the UK now specialises in services.

• This means the UK now sells different goods to different countries

What affects the pattern of trade

Creation of trading blocs

• Trading blocs cause trade diversion where common external tariffs encourage greater trading within the bloc at the expense of trading outside the bloc

• The UK now trades less with commonwealth countries and more with the EU

Changes in relative exchange rates

• A weaker exchange rate will (assuming price elastic demand) cause greater exports and lower imports...

• A stronger exchange rate will (assuming price elastic demand) cause greater imports and lower exports...