The patterns and processes of contemporary global trade; the role of comparative advantage, trade blocs, TNCs and global production networks; the resulting inequalities and interdependence; and the differential consequences of trade for places and people.

What this dot point is asking

OCR wants you to describe the patterns and processes of contemporary global trade, explain the roles of comparative advantage, trade blocs, TNCs and global production networks, explain the inequalities and interdependence that trade creates, and assess its differential consequences for places and people. This is one of two Global Systems options (the other is Global migration).

The answer

Patterns and processes of global trade

The processes behind today's trade are the falling cost of moving goods (containerisation, cheap shipping) and information (the internet), the liberalisation of trade through reduced tariffs and agreements, and the fragmentation of production into global value chains. The pattern remains highly uneven: a small number of economies dominate world trade, while many developing countries trade a narrow range of primary commodities. Trade has also shifted over time, with the rise of China and East Asia rebalancing flows towards the Asia-Pacific, showing that patterns are dynamic rather than fixed.

Comparative advantage, blocs and agreements

The classic explanation for who trades what is comparative advantage: countries gain by specialising in what they produce at lowest opportunity cost and trading for the rest, raising total output. This drives specialisation and a global division of labour. Trade is then organised and governed through institutions and agreements: trade blocs such as the EU and USMCA reduce barriers between members (trade creation) but can divert trade from non-members; bilateral and multilateral agreements lower tariffs; and the World Trade Organization sets rules and arbitrates disputes. These structures shape the terms of trade, the relative prices at which countries exchange exports for imports, which strongly affects who benefits.

Interdependence and inequality

Trade binds places into deep interdependence: economies rely on one another for inputs, markets and capital, so a shock in one (a factory closure, a tariff war, a pandemic disruption) ripples globally. But interdependence is asymmetric, and trade creates and reshapes inequality. A core-periphery structure concentrates profit, technology and high-value activity in developed economies and TNC home countries, while many developing economies are locked into low-value roles: exporting volatile primary commodities or assembling goods whose value is captured elsewhere. Unequal terms of trade and rich-country protectionism (tariffs and subsidies, for example on agriculture) can entrench this. Trade is therefore a powerful but uneven force.

Differential consequences for places and people

The consequences of trade differ sharply by place and group. Export-led growth has transformed East Asian economies, lifting hundreds of millions out of poverty and building manufacturing and then high-tech sectors, the clearest case of trade reducing global inequality. Elsewhere, commodity dependence leaves economies exposed to price swings and limited value capture, and trade liberalisation can expose vulnerable producers (such as smallholder farmers) to competition from subsidised imports. Within countries too, trade creates winners (exporters, urban workers) and losers (uncompetitive industries, displaced workers). The outcome depends on what a place trades and where it sits in the production network, which is why evaluation, not generalisation, is rewarded.

Examples in context

Example 1. East Asian export-led growth. China, South Korea and others used export-led strategies to integrate into global production networks, initially as low-cost manufacturers and then moving up the value chain into electronics, technology and services. This lifted hundreds of millions out of poverty, rebalanced world trade towards the Asia-Pacific, and demonstrates trade reducing global inequality where a country can capture rising value, the strongest positive case for the evaluation questions.

Example 2. Primary-commodity dependence in parts of sub-Saharan Africa. Many economies remain dependent on exporting a narrow range of primary commodities (minerals, cocoa, oil) whose prices are volatile and whose processing and profit are largely captured abroad. Rich-country tariffs and agricultural subsidies further disadvantage their producers, and price crashes can devastate national budgets. This illustrates trade entrenching inequality through unequal terms of trade and low value capture, the contrasting case that makes the assessment balanced.

Try this

Q1. Define comparative advantage. [2 marks]

• Cue. The principle that a country gains by specialising in goods or services it can produce at lower opportunity cost than others, and trading for the rest.

Q2. Explain one way TNCs influence the pattern of global trade. [4 marks]

• Cue. Through global production networks, TNCs allocate each stage of production to wherever it is cheapest or most advantageous, fragmenting manufacturing across countries and concentrating high-value stages in core economies.