The Benefits & Costs of Trade (AQA A Level Economics)

The Economic Benefits of Trade

• Free trade is the movement of goods and services across borders without barriers to trade 

  • There are no or limited taxes, quotas, subsidies, regulations on the trade of goods or services

Diagram: The Economic Benefits of Free Trade

 Free trade is the movement of goods and services without government restrictions

• Greater choice: with access to a wider variety of goods/services, the standard of living improves

• Lower prices: As the amount of competition increases, firms benefit from economies of scale, causing costs to fall and consumers benefit in the form of lower prices 

• International cooperation: required for trade helps countries build better relationships, which leads to lower levels of hostilities

• Flow of new ideas: innovative ideas and technology can be shared between countries

• Access to resources: output can increase and costs of production can fall with increased access to raw materials

• Increased efficiency: international competition allows the most efficient firms to emerge and this improves the use of global resources

• Economic growth: exports are a key component of the gross domestic product of many countries and an increase in exports can lead to economic growth

• Economic development: Increased output leads to lower levels of unemployment, which leads to higher incomes and a higher standard of living

The Costs of International Trade

• International trade countries increases the choice of goods and services

  • However, this trade may favour more economically developed countries and and exploit less economically developed countries 

  • The following outlines the costs associated with international trade for countries
     

The Costs of International Trade

Reasons for Changes in UK Trading Patterns

• Numerous factors influence the pattern of trade between the UK and the rest of the world e.g. Brexit has resulted in a fundamental change to the trading relationship with the EU
  
  

• Patterns of trade can change significantly over time

  • Up until the 1980s, the UK mainly traded with Commonwealth Countries

  • In 2020, 46% of trade was with EU countries and 26% was with the USA

1. Comparative advantage:  As firms seek to profit maximise they increase production due to natural advantages. When it makes financial sense to outsource production because another country does it better/cheaper. Over time, this changes what countries produce & trade
   
   

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

3. Growth of trading blocs & bilateral trading agreements: By December of 2016, the World Trade Organisation (WTO) had helped to facilitate more than 420 regional trading blocs & bilateral agreements (between 2 countries)
   
   

4. Changes in relative exchange rates: If a country's exchange rate appreciates, then its exports are relatively more expensive & 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