Pattern of Trade

The composition of a country’s imports and exports, and the volume of its trade with the rest of the world is likely to change over a period of time. This can be seen clearly in the case of the U.K. the most important changes in U.K. trade are as follows:

__Increase in foreign trade relative to GDP __– In recent decades the U.K. has become more dependent on the world economy. In the 1950s, exports of goods and services accounted for approximately a quarter of GDP. This figure is now around a third.

Relative decline of manufactured goods – Manufactured exports have steadily declined relative to both exports of services and to the imports of manufactures. In the 1950s the U.K. exported three times as much manufactured goods as it imported. Now the U.K. is a net importer of manufactured goods (ie imports of goods exceed exports). Services have correspondingly increased in importance. In the 1950s the value of exports of goods exceeded services by a factor of 3:1. Now the ratio is much closer at 3:2.

Changing geographical pattern of trade - For much of the 20th century, the U.K. still relied to a large extent on the countries of its former empire for trade; importing raw materials and food from them and exporting back finished manufactured goods. This pattern has changed greatly since the 1970s. Over half our trade is now with members of the E.U. and a rising proportion is also with emerging market economies.

Which countries are collectively known as the 'BRICS'?: Your answer should include: Brazil / Russia / India / China / South Africa
Which are the 'MINT' countries?: Your answer should include: Mexico / Indonesia / Nigeria / Turkey
Which countries are known as the 'V4' or 'Visegrad group'?: Emerging economies

Reasons for Changes in Trading Patterns

Changes in comparative advantage - A country can experience a change in its comparative advantage over time. Most of the richest countries in Europe and north America have seen comparative advantage shift from older industries, such as textiles, shipbuilding and steel making, towards services and high tech ‘knowledge industries’.

Impact of emerging economies – The rise of countries such as China, India and other emerging economies has had a major impact on trade patterns. Much more manufacturing now takes place in these countries, and correspondingly less in the mature economies of Western Europe, North America and Japan. Countries in Eastern Europe have also experienced a boom in manufacturing.

Trading blocs and bilateral trading agreements – A trading bloc is a group of countries which have preferential trading arrangements with each other, leading to more trade amongst members, resulting in some trade diversion from non-member countries (see notes on 4.1.5 for full discussion). Membership of the European Union has had a dramatic effect on the pattern of U.K. trade. Over half our exports of goods and services go to countries in the EU, compared to under 20% that go to the U.S.A, whose economy is of a similar size to the E.U. A bilateral trade agreement involves preferential trading arrangements between two countries or groups of countries. For instance the E.U. has special arrangements with Canada under the CETA arrangement.

Changes in relative exchange rates – Over time a country may experience an appreciation or depreciation of its exchange rate. For instance, in the 1970s the U.K. started to become a major producer of oil and gas from the North Sea. One effect of the oil boom was to drive up the value of sterling against other currencies, making U.K. goods more expensive abroad, and foreign goods cheaper in the U.K. This made much of our manufacturing uncompetitive and contributed to the long term de-industrialisation of Britain. Because it became harder to compete on price, the country had to rely more on high tech ‘knowledge industries’ and services, where competitiveness is less price dependent. (see notes on 4.1.8)