Geography · Economic geography
Global trade
Imports, exports, currencies.
What is global trade?
Global trade means countries buying and selling goods and services with each other. Items sold to other countries are exports. Items bought from other countries are imports. Trade happens because countries cannot produce everything they need or want themselves. For example, Britain imports bananas because the climate is too cold to grow them. Trade helps everyone access a wider variety of products.
Why do countries trade?
Countries specialise in making things they are good at producing. Saudi Arabia exports oil because it has large reserves underground. Kenya exports flowers because the climate and soil are perfect for growing them. Japan exports technology because it has skilled workers and advanced factories. By specialising, countries produce goods more efficiently and cheaply than if every country tried making everything.
What are currencies?
Currencies are different types of money used in countries around the world. The UK uses pounds (£), the USA uses dollars ($), and many European countries use euros (€). When countries trade, they must exchange currencies. This is called foreign exchange. Exchange rates tell us how much one currency is worth in another currency. For example, £1 might equal $1.25.
Balance of trade
The balance of trade compares the value of exports to the value of imports. A trade surplus happens when a country exports more than it imports. A trade deficit happens when a country imports more than it exports. Germany often has a trade surplus because it exports many cars and machines. The balance of trade affects a country's economy and the value of its currency.
Trade agreements and barriers
Countries sometimes create trade agreements to make buying and selling easier between them. These agreements might reduce taxes on imports called tariffs. Trade barriers like tariffs make imported goods more expensive to protect local businesses. Some countries form trading blocs where members trade freely with each other. The European Union is one example of a trading bloc.
Worked examples
1. Brazil sells coffee to France for €5,000. Brazil buys cheese from France for €3,000. Does Brazil have a trade surplus or deficit with France?
- Identify Brazil's exports: €5,000 from selling coffee.
- Identify Brazil's imports: €3,000 spent buying cheese.
- Compare: €5,000 (exports) is greater than €3,000 (imports).
- Brazil has a trade surplus of €2,000 with France.
2. A UK company wants to buy toys from China for $10,000. If £1 = $1.25, how many pounds does the company need?
- The toys cost $10,000 in US dollars.
- The exchange rate is £1 = $1.25, so $1 = £0.80.
- Divide $10,000 by 1.25 to find pounds needed.
- The company needs £8,000 to buy the toys.
3. India exports rice worth $2 million and imports oil worth $5 million. Describe India's balance of trade.
- Exports are worth $2 million.
- Imports are worth $5 million.
- Imports are larger than exports by $3 million.
- India has a trade deficit of $3 million.
Try it yourself
Australia exports iron ore to Japan for ¥900,000. If £1 = ¥180, what is the export value in pounds?
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