Health, Sports & Psychology

The Global Trade Trap: Goods or services?

Updated Friday 1st July 2011

There's a changing pattern of trade in which services are being bought and sold across national boundaries. Leslie Budd explains.

Make something of your business - find out what The Open University Business School has to offer

There are certain myths that endure about economics. One is about globalisation and the role of trade in promoting globalisation. Foreign Direct Investment (FDI) has been the leading indicator of globalisation, which in itself has generated greater trade flows. Although trade has increased over time this is in line with gains in income and wealth, but also a large part of the rise is due to what are called emerging economies. The chart below shows World Merchandise Trade (US$bn at 2008 prices).

World Merchandise Trade chart

The other driver has been the development of Regional Trade Agreements (RTAs) and  more integrated regional economic areas, for example the European Union. These arrangements seek to create greater creation and diversion from other areas.

The other driver of world trade has been the development of institutions like the World Trade Organisation (WTO) which exists to attempt regulate restraints to trade.

Underneath this picture is a changing pattern of trade in which services are being bought and sold across national boundaries. The trap that many observers have fallen into is to think that services are the only important part of the economy, but you have to distinguish between tradable services (architecture and engineering services, higher education) and non-tradable ones (local hairdressers, plumbers). As economies develop and their citizens get wealthier, trade in services tend to grow. The UK is a case in point. It has had a net surplus  in tradable services for the last decade which is demonstrated in the next chart.

Net Trade Balance of UK Trade in Services

However, this surplus has not been sufficient to compensate for the deficit on traded goods as manufacturing accounts for 75 per cent of business expenditure on R & D in the UK and accounts for a significant source of demand for advanced producer services that are globally traded. There is thus the possibility of a virtuous circle whereby stimulating manufacturing will create extra demand for tradable services. 

Insurance and financial and  services accounted for  about 80 per cent of this trade in 2009, down from 92 per cent in 1998.  The figures for other business services were 29 per cent and 69 per cent respectively suggesting that the caricature that all we do is financial services is not accurate, thus entrapping ourselves in a rear view mirror picture of the British economy and its global potential. The net balances for architectural, engineering and technical services have doubled, and audio-visual services have quadrupled over the period, that  may reflect the apparent internationally comparative advantage in design.

The global trade trap is one that we could all fall into, unless we step back and take a look on what is actually going on, for which we all need to ask three questions: where’s the theory? Where’s the evidence? Where’s the data?

What is your theory, evidence and data form your own professional and personal experience? Join the debate that the Made in Britain series has stimulated by contributing your stories using the comments facility below.
 

More about Made in Britain

 

For further information, take a look at our frequently asked questions which may give you the support you need.

Have a question?

Other content you may like

Visible Trade: A UK trade data visualisation tool Copyrighted image Icon Copyright: The Open University / Shipping containers © Videowokart | Dreamstime.com activity icon

Money & Business 

Visible Trade: A UK trade data visualisation tool

Delve into 20 years’ worth of UK export and import data to discover some surprising stories about the UK’s trade relations with the rest of the world.

Activity
article icon

Money & Business 

The credit crunch and SMEs

Small businesses are likely to be the wost affected by the recession.

Article
Day 23 - Royalty Creative commons image Icon By theadz01 via Flickr under Creative Commons license under Creative-Commons license article icon

Health, Sports & Psychology 

Day 23 - Royalty

As another Royal engagement is announced and the nation gears up for the traditional Queen's Speech on Christmas day, we draw together some interesting royal articles and suggestions for taking your learning further

Article
Introducing white-collar crime Copyrighted image Icon Copyright: Jupiter audio icon

Health, Sports & Psychology 

Introducing white-collar crime

 Louise Westmarland introduces the white-collar crime season

Audio
10 mins
Looking after the small things Copyrighted image Icon Copyright: The Open University video icon

Health, Sports & Psychology 

Looking after the small things

Marine biologist Ceri Lewis is studying how pollution affects small marine invertebrates. Can these creatures really respond and adapt to environmental change?

Video
5 mins
Olympics 2012: The politics and history of the games Creative commons image Icon AtomicShed under CC-BY-NC-ND licence under Creative-Commons license article icon

Health, Sports & Psychology 

Olympics 2012: The politics and history of the games

Politics, business and Olympics go hand in hand. Read these articles and watch these videos to find out more.

Article
OU on the BBC: Beagle 2: A Mission To Mars: About the programmes Copyrighted image Icon Copyright: Used with permission article icon

Health, Sports & Psychology 

OU on the BBC: Beagle 2: A Mission To Mars: About the programmes

Introducing a documentary that charts the highs and lows encountered by the Open University-led team that worked on the Beagle 2 lander that was built to look for signs of life on Mars.

Article
OpenLearn: Bringing award-winning content to you Copyrighted image Icon Copyright: Nadiya Vlashchenko | Dreamstime.com article icon

Health, Sports & Psychology 

OpenLearn: Bringing award-winning content to you

Last night the prestigious 2010 E-Learning Awards ceremony was held in London and OpenLearn are pleased to announce that we won the Gold prize for Best Use of Social Media for Learning. 92Rewind was a multiplatform project using Twitter to post updates on the 1992 election in conjunction with the general election earlier this year. Whatsmore, the OU, the BBC and Lion Television series Syrian School has won the prestigious Japan Prize 2010 for a second year in a row. Here is another chance to explore the content that helped us to achieve these awards

Article
OU on the BBC: The Other Medicine Copyrighted image Icon Copyright: Used with permission article icon

Health, Sports & Psychology 

OU on the BBC: The Other Medicine

Anna Ford explores treatments beyond mainstream medicine for BBC Radio 4.

Article