pattern-of-trade

Factors Influencing the Pattern of Trade

• Patterns of trade describe the composition, direction, and volume of trade between countries over time

• Numerous factors influence the pattern of trade between countries

  • Patterns of trade can change significantly over time e.g. up to the 1980s the UK traded predominantly with Commonwealth Countries. In 2020, 46% of trade was with EU countries and 26% was with the USA

1. Comparative advantage:  this is less a grand plan and more a natural market outcome as firms seek to profit maximise. Where it makes sense to increase production due to natural advantages, firms do. When it makes financial sense to outsource production because another country does it better/cheaper, firms do. Over time, this changes what countries produce and trade

2. Impact of emerging economies:  Emerging world economies like China, Brazil, India and Thailand have obtained a much higher share of the global business which means that other countries are losing out as trading relationships change

3. Growth of trading blocs and bilateral trading agreements: By December of 2016, the World Trade Organisation (WTO) had helped to facilitate more than 420 regional trading blocs and bilateral agreements (between 2 countries). This results in trade creation and causes trade diversion

4. Changes in relative exchange rates: If a country’s exchange rate appreciates, then its exports are relatively more expensive and its imports become cheaper. This means that changes to the exchange rates influence the patterns of trade over time as goods/services either become cheaper or more expensive in relation to the price of goods/services in other countries.