3.1 Understanding International Trade

The UK trades a high value of goods and services with other countries each year. Exports – goods and services the UK sells to buyers in other countries Imports – goods and services the UK buys from other countries Balance of Payments – the difference between the value of all exports and all the imports of a country (The UK has a negative Balance of Payment because we import more than we export.)

Importance of trade to the UK economy The UK has been particularly strong in exporting financial and educational services (these are known as Commercial Services – services which are used and supplied by businesses ie: banking, training, transport) The UK can specialise in producing the goods and services that it makes better and more efficiently than our competitors. The surplus goods are then sold abroad, creating jobs for UK citizens. Each country has different raw materials, climates, cultures, labour skills, etc, which give them advantages in producing certain types of goods and services (this is known as comparative advantage)

Globalisation – the process of increasing international trade and economic interdependence between countries Advantages of Globalisation to the UK economyDisadvantages of trade to the UK economy Income – increased production means more workers are needed, and this means more jobs Growth – growing exports mean increasing production, which leads to higher economic growth (ie: rise in GDP) Choice and product differentiation Cheaper prices Competition and innovation Raw materials – the UK is relatively poor in raw materials so it is essential that we import the materials we need (ie: metals, gems, energy) Competition – it may benefit consumers in terms of cheaper prices and greater variety, but UK firms may find it difficult to compete Economic dependency Unstable commodity prices The power of Multinational Corporations (MNCs) Environment and sustainability (Carbon Footprint – the total greenhouse gas emissions (CO2) caused by the preparation, production, transportation of a product)