Trading Relationships and Patterns (AQA A-Level Geography): Revision Notes

Trading Relationships and Patterns

Trading relationships between nations vary significantly depending on their level of economic development, political ideology, and regional connections. Countries engage in trade through bilateral agreements, regional trading blocs, or multilateral arrangements. Understanding these patterns helps explain global economic interdependence and inequality.

Highly developed economies (HDEs)

USA - shifting trade policy

The USA has historically adopted a protectionist approach to trade, avoiding comprehensive free trade agreements for many years. However, this stance has shifted dramatically over recent decades.

Obama administration (2009-2017):

During this period, the USA actively pursued major multilateral free trade agreements:

• Trans-Pacific Partnership (TPP) - negotiations with Asia-Pacific countries to create a large free trade zone
• Trans-Atlantic Trade and Investment Partnership (TTIP) - proposed agreement with the EU to reduce tariffs and regulatory barriers

Trump administration (2016-2020):

President Trump campaigned on protecting American domestic industries and reversing the trend towards multilateral trade deals. Key changes included:

• Withdrawal from TPP - Trump removed the USA from negotiations. Other countries continued without American involvement
• TTIP collapse - negotiations ended in 2016 when the USA demanded access to EU markets that many European countries found unacceptable. The EU officially closed negotiations in 2019
• USMCA creation - the North American Free Trade Agreement (NAFTA) was renegotiated and replaced with the United States-Mexico-Canada Agreement
• Bilateral trade focus - Trump pursued individual agreements with specific countries rather than large trading blocs

Current bilateral trade arrangements:

The USA maintains twenty separate free trade agreements with individual nations, including:

• Several TPP countries
• Central American and Middle Eastern nations
• South Korea (the only Asia-Pacific agreement)

Future direction:

The election of President Joe Biden in late 2020 signals a probable shift back towards multilateral cooperation and international trade engagement.

The European Union - trading as a bloc

The EU operates differently from the USA due to its structure as a customs union. This means:

Intra-regional trade patterns:

• Approximately 65% of EU trade occurs between member states
• This high level of internal trade creates strong integration and interdependence
• Free movement of goods between members enhances cooperation

External trade relationships:

The EU has negotiated bilateral trade deals with various countries and regions:

• Australia, New Zealand, Mexico
• Japan, Singapore, Vietnam
• Canada-EU deal (2017) - The Comprehensive Economic and Trade Agreement (CETA) created virtually free trade and regulatory compatibility between the two economies
• Mercosur agreement (2019) - A trade deal with the South American trading bloc, though ratification by all member states remains pending

Growing opposition to free trade:

Anti-free trade movements have gained momentum in the EU for several reasons:

These concerns make it difficult to reach new agreements between the EU and USA, given their differing standards and production methods.

Brexit implications:

The UK's departure from the EU presents challenges:

• The UK was a major contributor to EU funds
• It attracted significant manufacturing investment
• It provided a large market for goods

During the 2020 transition period, the UK negotiated a new free trade deal with the EU. This was crucial for British firms who had built supply networks across the EU over decades of integration.

Emerging economies

China - manufacturing powerhouse

China's remarkable economic growth over the past 30 years stems from becoming the manufacturing centre for consumer goods sold to wealthier nations.

Recent developments:

• China has emerged as the world's leading trading power
• It accounts for nearly 20% of global exports
• It represents around 15% of global imports

Trading patterns:

China's trade reflects its role in global manufacturing supply chains:

Imports:

• Raw materials from developing countries, particularly Latin America and sub-Saharan Africa
• Processed metals (steel) and manufactured electronic components from developed countries

Exports:

• Cheaply produced, state-subsidised steel to global markets
• Manufactured electronic consumer goods to developed countries, especially Europe and North America

Trade war with the USA:

The export of heavily subsidised Chinese steel triggered a trade conflict with the USA:

• High tariffs imposed on goods traded between the two countries
• Some experts argue this represents the primary cause of current stagnation in world trade growth
• Tensions continue to affect global economic patterns

Belt and Road Initiative:

China is pursuing ambitious plans to expand its trade connections through major infrastructure investments, creating new trade routes and partnerships.

India - diverse economic growth

India has experienced sustained and rapid industrial growth over the past 25 years, though its emergence as a major economic power has been slightly less dramatic than China's.

Economic characteristics:

• More diverse economy than China
• More globally integrated commercial and services sector
• Food security remains a crucial concern, as it does in China

Historical context:

Both India and China experienced devastating famines in the 1960s. India's Green Revolution improved staple food production, alleviating concerns. However, agricultural change displaced many rural labourers who migrated to urban areas seeking work. Wholesale rural change created demographic shifts, with a large, young workforce attracting industrial development investment.

Trading patterns (2018):

Exports:

• Refined petroleum, chemicals, gold and diamonds
• Rice, cars and textiles

Imports:

• Crude oil (for refining and exporting)
• Coal briquettes and gas

Trading partners:

• Main export destinations: EU (mainly Germany and UK), USA, UAE, China, Hong Kong and Singapore
• Main import sources: China, USA, Saudi Arabia and UAE

Westward trading focus:

India has traditionally maintained stronger trading relationships with western partners, partly due to high English language proficiency amongst its population. However, trade with emerging markets in Asia and the Middle East has expanded significantly, giving India a distinctive trading pattern.

Less developed economies (LDEs)

Latin America - two competing models

Latin America's future trading relationships centre on two distinct regional trading blocs, each with different approaches to developing trading links.

Mercosur (Southern Common Market):

Formed in 1991, Mercosur is the larger bloc with combined GDP of US$3.4 trillion. Current members include:

• Brazil
• Argentina
• Uruguay
• Paraguay
• Venezuela (suspended indefinitely in 2016 for failing to comply with trade regulations)

Key features:

• Functions as a single market and customs union, attempting to emulate the EU model
• Called the 'Common Market of the South'
• Allows free movement of labour between member states
• Most exported products are raw materials, energy, minerals and food resources, enabling global trade but creating vulnerability to fluctuating prices
• Apart from mineral exports to China, Mercosur views the EU and North America as primary markets
• The proposed EU trade deal represents a major development opportunity once ratified

Pacific Alliance:

Formed more recently in 2011, the Pacific Alliance comprises:

• Chile
• Peru
• Colombia
• Mexico

Combined GDP: US$2.3 trillion. Ecuador is expected to join soon.

Potential future integration:

Since 2017, there has been increased discussion about merging the two blocs to form one large free trade area. This would be directed by the intergovernmental body, the Union of South American Nations (UNASUR), and would include all Latin American countries as members.

Benefits of integration:

• Increased intra-regional trade
• Greater collective trading power on the global stage

Challenges to integration:

• Varying levels of economic development between nations
• Different political ideologies across countries
• Political instability, as seen in Venezuela and Ecuador in recent years

Sub-Saharan Africa - primary resource dependency

Trading relationships in sub-Saharan Africa share similarities with Latin America but face more disadvantages and less integration.

Current trading challenges:

• Minimal intra-regional trade between African nations
• Main exports remain primary resources and commodities such as minerals, energy and food resources
• Lack of skills, poor transport and energy infrastructure, and widespread corruption discourage industrial investment
• African countries struggle to add value to exports, relying on imports of manufactured goods instead

Changing trading partners:

• Traditionally, Africa's main trading partner has been Europe
• This has changed with China's growing involvement on the continent
• Africa is larger, poorer and more culturally divided than South America
• Many more language, ethnic and cultural divisions exist

Future developments:

Two factors may transform African trading relationships:

1. Chinese investment:

Chinese infrastructure investment in Africa has undoubtedly benefited China's own interests. However, it has also increased African connectivity and integration between nations.

2. African Continent Free Trade Area (AfCFTA):

Africa has five main regional trading groups with some overlap but minimal integration between them. Even within these groupings, linguistic and cultural divisions exist.

In 2018, after years of negotiations by the African Union, these five groups agreed to work together and created AfCFTA:

• The world's largest free trade area
• Population of 1.3 billion people
• The largest single market
• Came into effect in 2019 without Nigeria initially, but Nigeria joined shortly afterwards
• 54 of the 55 African nations have now signed the deal

Fair trade in LDEs

Fair trade is a social movement whose goal is to help producers in LDEs achieve better trading conditions. The movement focuses mainly on agricultural-based products including coffee, tea, cocoa, sugar, bananas, cotton and chocolate.

The fair trade argument:

Producers of commodities do not receive an equitable deal from the organisations they supply to. Buyers such as transnational corporations, food processing companies and supermarket chains from developed countries can force down prices because individual suppliers:

• Have little market influence
• Are extremely reliant on income from their goods

How fair trade works:

The fair trade movement advocates paying higher prices to producers, whilst helping them achieve improved social and environmental standards. Fair trade organisations assist producers to:

• Form into co-operatives, giving them more influence over market conditions
• Negotiate better deals with buyers or supply directly
• Access the International Fairtrade Certification mark

This allows 'ethical consumers' to recognise they are buying goods for which the producer received a fair price.

Key differences:

Free trade focuses on:

• Increasing nations' economic growth
• Trade policies between countries
• Benefiting multinational corporations and powerful business interests
• Lowering tariffs, quotas and labour/environmental standards

Fair trade focuses on:

• Empowering marginalised people
• Commerce among individuals and businesses
• Supporting vulnerable farmers, artisans and workers in less industrialised countries
• Offering producers fair financing, long-term relationships, minimum prices and higher labour and environmental standards

Differential access to markets

Each country's access to markets is determined by its ability to trade with other countries. Access to international markets is limited by any barriers that might be in place, such as tariffs, quotas or trade regulations. This depends on the degree of protectionism used by other countries or trading blocs.

Access associated with levels of economic development

Wealthier, more developed economies generally have better access to markets because:

• They can afford to pay higher tariffs on exported goods
• They have greater negotiating power when forming trade agreements
• Their producers can meet strict regulatory standards required by other markets
• They possess the infrastructure and resources to overcome trade barriers

Conversely, less developed economies face restricted market access due to:

• Limited ability to pay high tariffs
• Weaker negotiating positions in trade talks
• Difficulty meeting technical and regulatory standards
• Poor infrastructure hampering trade capacity

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