Why countries trade: exports & imports

No country can produce everything it needs, so countries trade with each other. Trade means exports and imports:

• Exports — goods & services sold abroad to other countries (money flows in).
• Imports — goods & services bought from abroad (money flows out).
• Why trade? — countries specialise in what they do best (comparative advantage) and trade the rest, giving lower prices, more choice, and access to resources they lack.

Example: the UK exports financial services and imports goods like fruit, cars and electronics. Trade lets a country consume more than it could produce on its own.

Globalisation & its drivers

Globalisation is the growing integration and interdependence of the world's economies — through trade, investment, migration, technology and multinational companies (MNCs). It is driven by:

Two sides: globalisation brings benefits (more choice, lower prices, jobs and investment) but also costs (job losses in some sectors, and environmental impact).

Surplus or deficit?

Exchange rates: SPICED & WPIDEC

An exchange rate is the price of one currency in terms of another (e.g. £1 = $1.30). When the pound changes value, it changes the price of exports and imports:

• Stronger pound (appreciation) — SPICED: Strong Pound → Imports Cheaper, Exports Dearer.
• Weaker pound (depreciation) — WPIDEC: Weak Pound → Imports Dearer, Exports Cheaper.

Converting: to change pounds into dollars, multiply by the rate (£ × rate = $). To change dollars back into pounds, divide by the rate ($ ÷ rate = £).

Export, import or a cause of globalisation?

Tap an item, then tap the group it belongs to. (Selling to abroad = export; buying from abroad = import.)

Balance of payments & the trade balance

The balance of payments records all a country's transactions with the rest of the world. The current account records trade in goods & services and income flows.

• Surplus — exports are worth more than imports (a positive trade balance).
• Deficit — imports are worth more than exports (a negative trade balance).
• The UK typically runs a deficit in goods but a surplus in services.

Your turn — the trade balance

Your turn — pounds into dollars

What a change in the pound does

Because the exchange rate sets the price of exports and imports, a change in the pound feeds through to trade, jobs and prices:

• Weaker pound (WPIDEC) — exports become cheaper abroad (more competitive, exporters may sell more) but imports become dearer (can push up prices at home).
• Stronger pound (SPICED) — imports become cheaper (good for consumers and firms buying raw materials) but exports become dearer abroad (harder to sell).

Converting the other way, to find a foreign price in pounds you divide by the exchange rate. For example, at £1 = $1.25 a product priced at $100 costs $100 ÷ 1.25 = £80.

Link it up: a weaker pound can help close a trade deficit by boosting exports and cutting imports — but only if buyers respond to the price change.

Effect of a weaker pound

Converting between currencies

Exam calculations often ask you to convert a price from one currency to another. The rule depends on which way you are going:

• Pounds → foreign currency: multiply by the exchange rate.
• Foreign currency → pounds: divide by the exchange rate.

Why it matters: converting prices shows whether goods are cheap or dear abroad, and links directly to SPICED / WPIDEC and the balance of payments.

Your turn — dollars into pounds

Match each term to its meaning

Tap a description on the left, then its matching term on the right.

The big ideas to know

You've covered the core of OCR Topic 4 — International Trade and the Global Economy. Press Finish to see your score.