4.1.3 Pattern of trade

• Comparative advantage


  A country's ability to produce a good more efficiently than another country
• Developing countries have gained an advantage in the production of manufactured goods


  Due to their lower labour costs, production shifted abroad
• Deindustrialisation of countries such as the UK

  Manufacturing sector has declined, production of manufactured goods has shifted to other countries
• Industrialisation of China and India

  Their share of world trade has increased, the volume of manufactured goods they export has increased
• China's population is now ageing


  Their wage competitiveness has fallen, due to the rise of the middle class demanding higher wages
• Impact of emerging economies


  More countries, especially developing countries, are participating in world trade
• International trade is more important for developing countries than developed countries
• India's share of textiles and clothing fell from 35% in 1995 to 16% in 2005


  India's manufacturing sector produces more engineered goods than clothing and textiles
• China and India have invested in African infrastructure in exchange for natural resources
• Both China's and India's share in agriculture, mining and fuel has declined
• China and India are important in the Euro area, with trade and financial relations
• Trade creation


  A country consumes more imports from a low cost producer, and fewer from a high cost producer
• Trade diversion


  Trade shifts to a less efficient producer, a country might stop importing from a cheaper producer outside a trading bloc to a more expensive one inside the trading bloc
• Protectionist barriers are often imposed on countries who are not members of trading blocs, so trade is diverted from producers outside the bloc to producers within the trading bloc
• Policies of developed countries have limited the ability of developing countries to export primary commodities

  The EU Common Agricultural Policy (CAP) means domestic farmers receive subsidies, making it hard for farmers in other countries to compete
• China has been running a trade surplus with the US

  Since 2006, the US trade deficit has narrowed with China, and China has reduced their trade surplus
• China had kept their currency's value, the Renminbi, low


  In order to make their exports relatively cheap
• The strength of the pound compared to the Euro

  One of the reasons for the UK's current account deficit