Net Trade
Economics: Edexcel A A Level, topic 3.2.5
Net trade
Net trade is the balance of exports and imports. This can be influenced by several factors. The balance of UK exports and imports has changed in the past few years.
UK exports
- In 2016, UK exports were valued at around £300bn.
- The main exports in the UK were financial services, cars, wholesale medicines, gas turbines, petroleum and gold.
- The leading recipients of UK exports are the USA, Germany, the Netherlands and France.
Changes in UK exports
- Since 2000 the UK has decreased its share of exports to the EU from 55% to 45%, taking advantage of the rapid economic growth of countries such as Brazil, China, Russia and India.
- As London grew as a financial hub from 2000-2008, there was an increase in financial services exported to the rest of the world. This slowed after the global financial crisis of 2008, but is still a major contributor to UK exports.
UK imports
- In 2016, UK imports were valued at around £500bn.
- The main imports were cars, vehicle parts, aircraft, gold, petroleum and wholesale medicines.
- The leading suppliers of imports to the UK are Germany, China, the USA and the Netherlands.
Changes in UK imports
- Since 2000, over 50% of UK imports have come from the EU.
- The rapid growth of China as an exporter has meant that lots of UK imports now come from China.
- The decline of the UK manufacturing industry has meant that we import lots more manufactured goods, including computers.
- Between 1986 and 1998, the UK averaged a small trade deficit of around £5bn. This then grew until 2002, when it reached £30bn and has roughly been stable ever since.
Factors Influencing Net Trade
Several factors influence net trade.
Exchange Rates
- The exchange rate determines relative prices of exports and imports.
- The quality of goods affects international competitiveness.
Inflation rates
- Relative inflation rates affect domestic vs international prices.
Relative income
- Relative levels of income. The higher the domestic income, the higher the marginal propensity to import.
Spare capacity
- How much spare capacity there is to supply resources. The less there is, the more raw materials will need to be imported.
Protectionism
- If a country introduces protectionist measures, imports are less desirable.
- Protectionism is an attempt to improve the ratio of exports to imports and increase AD.
Test yourself on Net Trade
Which of the following are the leading imports into the UK economy (by total value)?
Which statement is true?
What determines the relative prices of exports and imports?