4.1 International trade

• What is international trade?

  The exchange of goods and services across international borders
• How has the pattern of global trade changed since WW2?

  • Increased significantly
  • More trading blocs formed
  • Rise of emerging markets like China and India
  • Greater participation from previously communist nations
• What is the effect of trading blocs on trade creation and diversion?

  They create trade among members but divert trade from non-member countries
• What has been the impact of deindustrialisation in countries like the UK?


  It has led to a decline in the manufacturing sector and a focus on services
• Which countries have seen industrialisation due to shifts in global trade?

  China and India
• What has been the trend in China's trade surplus with the US since 2006?

  The US trade deficit has narrowed and China has reduced their trade surplus
• What is the theory of comparative advantage?

  • Assumes a perfectly competitive market
  • Suggests specialization leads to efficiency
  • Does not account for exchange rates
• What are the potential consequences of full specialization according to the theory of comparative advantage?

  It could lead to structural unemployment due to lack of transferable skills
• How can countries develop an advantage in the production of a good?

  By specializing in the production of that good, like Vietnam with coffee
• What was Vietnam's market share in coffee production over the last 30 years?

  Increased from 1% to 20%
• Why might comparative advantage be considered less relevant today?

  Countries produce a wide variety of goods and services with little specialization
• What are the advantages of international trade?

  • Greater world output and economic welfare
  • Higher quality goods
  • Greater variety of goods and services
  • Lower average costs due to competition
  • Increased supply of goods
  • Outward shift in the PPF curve
  • More opportunities for economies of scale

  
• What are the disadvantages of international trade?

  • Overuse of non-renewable resources in less developed countries
  • Over-dependence on a single commodity
  • Increased structural unemployment due to production moving abroad
  • Risk of countries becoming stuck in the production of one good