International Trade — A-Level Economics Revision

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What is International Trade?

International trade is the exchange of goods and services between countries. It allows countries to specialise in producing goods where they have a comparative advantage (can produce at a lower opportunity cost), leading to a more efficient allocation of global resources and higher overall output. The pattern of trade is influenced by factors like comparative advantage, trade blocs, and protectionist policies.

Board notes: A core topic for all A-Level boards (AQA, Edexcel, OCR). All boards expect a clear understanding of the theory of comparative advantage and the arguments for and against free trade and protectionism. Edexcel and AQA often focus on the different types of trade blocs and their impact on member and non-member countries. OCR places emphasis on the role of the World Trade Organisation (WTO).

Worked example

Common mistakes

• 1Confusing absolute advantage with comparative advantage. A country has an absolute advantage if it can produce a good using fewer resources than another country. A country has a comparative advantage if it can produce a good at a lower opportunity cost. Trade is beneficial based on comparative, not absolute, advantage.
• 2Assuming that free trade benefits everyone in a country. While a country as a whole may gain from free trade, there will be winners and losers. For example, domestic industries that compete with cheaper imports may decline, leading to structural unemployment.
• 3Thinking that a trade deficit is always a sign of a failing economy. While a persistent and large trade deficit can be a problem, it can also reflect a strong economy where consumers have high incomes and a strong demand for imported goods and services.

International Trade exam questions

Exam-style questions for International Trade with mark-scheme style solutions and timing practice. Aligned to AQA, Edexcel and OCR specifications.

Frequently asked questions

• What are the main arguments for protectionism?

  Arguments for protectionism (restricting trade through tariffs, quotas, etc.) include protecting infant industries until they can compete, safeguarding jobs in declining industries, preventing dumping (selling goods below cost), and raising revenue for the government through tariffs.

• What is a customs union?

  A customs union is a type of trade bloc where member countries agree to remove all trade barriers between themselves and adopt a common external tariff on goods imported from outside the bloc. The European Union is a key example.