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4.1.3 Pattern of trade

Definition

Pattern of trade: which goods and services a country trades and the countries it trades them with.

  1. The pattern is dynamic, not fixed: trade flows shift over time as competitiveness, incomes and policy change.

Factors influencing the pattern of trade

Definition

Emerging economies: fast-growing, industrialising economies moving from low to middle income, e.g. China, India and Brazil.

Trading bloc: a group of countries that agree to reduce or remove trade barriers between themselves.

Bilateral trade agreement: a deal between two countries to lower trade barriers with each other.

  1. Comparative advantage sets the initial pattern, as countries export goods they make at lower opportunity cost, e.g. Gulf states such as Saudi Arabia and Qatar specialising in oil and gas, and many sub-Saharan African economies such as Nigeria and Zambia relying on commodity exports like crude oil and copper.
  2. The rise of emerging economies shifts where goods are made, e.g. China raising its share of world manufacturing exports and pulling world trade towards Asia, while India has become a global hub for IT and business services.
  3. Trading blocs and bilateral agreements redirect trade flows towards member countries, e.g. the EU single market, the USMCA agreement across the USA, Canada and Mexico, ASEAN in South East Asia and Mercosur in Latin America.
  4. Changes in relative exchange rates alter competitiveness and relative prices, so a weaker currency can make a country's exports cheaper abroad and its imports dearer, e.g. the sharp fall in the pound after the 2016 referendum raising the cost of UK imports, while a weaker yen has supported Japanese car exports.

Why patterns change over time

  1. A country can gain or lose comparative advantage as skills, capital and productivity develop, so today's exporter of a good can become tomorrow's importer.
  2. Rising productivity abroad shifts production there, e.g. much manufacturing moved to lower-cost Asian economies such as China and Vietnam while advanced economies specialised more in services such as finance.
  3. New trade agreements open new flows or divert existing ones away from non-members.
  4. Commodity dependence leaves the pattern of trade exposed to world price swings, e.g. Gulf oil exporters and commodity-reliant African and Latin American economies seeing their export earnings rise and fall with global demand.
Exam technique
  • Identify the main determinants of the pattern of trade.
  • Link a change in the trade data to an underlying cause such as productivity or the exchange rate.
  • Treat the pattern as continually reshaped.
Common Mistake
  • Do not treat trade patterns as fixed, as they are continually reshaped by competitiveness and policy.
Self review
  • What is the pattern of trade?
  • Name the four main factors that influence the pattern of trade.
  • How did the rise of emerging economies change trade?
  • How can a change in the exchange rate affect trade flows?
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The pattern of trade describes which goods and services a country imports and exports, and the countries with which it trades. It therefore has two dimensions: the composition of trade and the direction of trade.

Trade patterns are dynamic rather than fixed. They change as comparative advantage, productivity, incomes, exchange rates and trade policies change.

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The [     ] is the goods and services a country trades and the countries it trades with.

4.1.3 Pattern of trade Revision Guide

  1. A Level
  2. /Economics
  3. /4.1.3 Pattern of trade

Revision notes for Edexcel A A Level Economics 4.1.3 Pattern of trade: explanations and worked examples.

Revision guides