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ECO19International Trade and Free-trade Agreements

3.2.4.1 Benefits of trade to countries

Exports, imports and why countries trade

Almost every country trades. Exports are goods and services made in a country and sold abroad. Imports are goods and services made abroad and bought by people and firms at home.

  • Access: countries can buy what they can’t make easily, or at all (bananas and coffee in the UK; oil for countries with none).
  • Lower prices: some products are made more cheaply abroad, so imports can cut prices for consumers and firms.
  • Choice and quality: buyers get a wider range, including higher-quality goods from abroad.
  • Bigger markets: exporting lets firms sell to far more customers, raise sales and profit, and gain economies of scale.
  • Specialisation: countries can focus on what they do best and trade for the rest (next section).
  • Closer ties: trade builds political and economic links between countries.

Goods and services flow one way; money flows the other

Watch the directionA service is an export if a foreign buyer pays a UK firm, even if no one leaves the country. A German firm paying a London bank for advice is a UK export. A UK family’s holiday spending in Spain is a UK import.
Exam tipExaminers report that some students give the same benefit twice in different words (for example ‘cheaper goods’ and ‘lower prices’). Pick two different benefits, and say who gains: consumers, producers or the economy.
Exports
Goods and services produced in a country and sold abroad.
Imports
Goods and services produced abroad and bought in this country.
International trade
Buying and selling goods and services across national borders.
3.2.4.1 The importance of trade to economies

Specialisation and trade between countries

Just as a worker specialises in one job, a country can specialise in the goods and services it makes more cheaply or to a higher quality than others, then trade for the rest.

  • Countries differ in their resources: climate, land, minerals, skills, capital and technology.
  • If each country focuses on what it produces at lower cost or higher quality, total world output rises.
  • Trade then lets each country swap its surplus for goods it would find expensive to make at home, so national income and living standards rise.
  • The UK specialises in many services (finance, law, consulting, education, creative industries) and some high-tech goods (medicines, aircraft engines, cars).
  • Specialising needs trade: a country that makes mostly a few things depends on others for the rest (see global interdependence).
Worked exampleTwo invented countries each have 10 workers. In a day, one worker in Northia can make 4 tables or 2 bikes; one worker in Southia can make 1 table or 3 bikes. Each country splits its workers 5 and 5. What happens to total output if each specialises completely?
  1. Before: Northia 20 tables + 10 bikes; Southia 5 tables + 15 bikes.5 workers on each product in each country.
  2. Total before: 25 tables and 25 bikes.Add the two countries.
  3. After: Northia makes only tables, 10 × 4 = 40; Southia makes only bikes, 10 × 3 = 30.Each uses all its workers on the product it makes better.
  4. Total after: 40 tables and 30 bikes.More of both, so both can be better off after trading.
Output rises from 25 tables and 25 bikes to 40 tables and 30 bikes. (This is an illustration: AQA doesn’t ask you to calculate gains from trade.)
LinkSpecialisation and the division of labour for workers and firms are in Markets, Economic Sectors and Specialisation. Here the idea is the same, applied to whole countries.
Specialisation (between countries)
A country concentrating on producing the goods and services it makes most efficiently, and trading for others.
3.2.4.1 UK’s exports and imports

The UK’s main exports and imports

Trade matters a lot to the UK. In 2025 the UK exported £913 billion of goods and services and imported £953 billion (ONS, published 14 October 2026).

  • Services are more than half of UK exports: £523 billion of the £913 billion in 2025 (57.3%).
  • The UK imports far more goods than it exports (a deficit on goods) but exports more services than it imports (a surplus on services).
  • Overall, imports were larger than exports in 2025, by £40 billion. Working out trade balances, and what they mean, is taught in The Balance of Payments and Exchange Rates.
Main examples
Service exportsFinancial services (banking, insurance), legal and accounting, consulting, education for overseas students, film, music and TV, tourism by overseas visitors
Goods exportsCars, machinery, medicines and pharmaceuticals, aircraft engines, fuels, whisky
Goods importsFuels, machinery, cars, food, clothing and footwear, electronics
Service importsHolidays abroad by UK residents, transport, business services

UK trade in goods and in services, 2025 (ONS)

Worked exampleIn 2025 UK exports of services were £523 billion and total UK exports were £913 billion. Calculate services as a percentage of total exports, to 1 decimal place.
  1. 523 ÷ 913 = 0.5728…Part ÷ whole.
  2. 0.5728… × 100 = 57.28…%Turn it into a percentage.
57.3%
Exam tipMany students think of trade only as physical goods in ships. The UK’s biggest strength is services, so a strong answer on UK exports mentions financial and professional services.
Dated figuresThese are 2025 figures, last checked November 2026. The method (part ÷ whole × 100) works for any year.
3.2.4.1 UK’s exports and imports

The UK’s main trading partners

The UK trades with almost every country, but a few partners matter most. For trade in goods in 2025 (ONS, published 15 October 2026):

  • The EU as a whole is the UK’s biggest partner: in 2025 the 27 EU countries took 46.6% of UK goods exports and supplied 51.4% of UK goods imports.
  • The USA is the largest single country partner.
  • Why nearby countries trade more: lower transport costs and quicker delivery, similar tastes and incomes, and long-standing supply chains.
  • China is a major source of manufactured imports, such as electronics, toys and clothing.
RankCountryTotal goods trade (exports + imports), 2025
1United States£123 billion
2Germany£109 billion
3China£87 billion
4Netherlands£78 billion
5France£61 billion
Dated figuresPartner rankings change from year to year. Learn the pattern (the EU together, the USA as the largest single country) rather than exact numbers. Last checked November 2026.
3.2.4.1 Consequences of global interdependence

Global interdependence

Global interdependence means countries rely on each other, because of specialisation and trade. What happens in one economy affects others.

  • Example (2026): conflict in the Middle East since February 2026 disrupted energy supplies and pushed up oil prices (about $95 a barrel at the peak in the second quarter of 2026). Higher energy prices fed into UK inflation, which was 3.5% in September 2026 (ONS).
  • The more open an economy is, the more it gains from trade, and the more exposed it is to events abroad.
Advantages for the UKRisks for the UK
Bigger markets for UK firms, so more output and jobsStructural unemployment in industries that lose out to cheaper producers abroad
Cheaper raw materials, parts and finished goodsA recession abroad cuts demand for UK exports, so growth and jobs fall
Faster growth abroad raises demand for UK exportsWorld prices of oil, gas or food can rise, causing cost-push inflation in the UK
Access to new ideas and technologySupply chains can break if a key supplier or shipping route is disrupted
Exam tipRead the question’s focus. In one exam, many answers ‘talked about interdependence in general’ instead of its effects on UK employment, as the question asked. Keep every point tied to the group named.
Global interdependence
The reliance of countries on each other, resulting from specialisation and trade.
3.2.4.3 Free trade

Free trade and trade barriers

Free trade is trade between countries with no tariffs or other artificial barriers set by governments. When a government restricts imports to shield its own firms, this is called protectionism.

  • Other barriers include strict product standards, slow customs checks and paperwork, and subsidies to home producers.
  • Natural obstacles (distance, language, different laws) also make trade harder, but free trade removes the barriers that governments create.
  • Retaliation: if one country puts up barriers, others often respond with their own, which can cut trade for everyone (a ‘trade war’).
BarrierWhat it isEffect
TariffA tax on imported goodsRaises the price of imports; the government gains revenue
QuotaA limit on the quantity (or value) of a good that can be importedLimits supply of imports, so their price tends to rise
Ban (embargo)Imports of a product are not allowed at allUsed for unsafe products or for political or strategic reasons

The three main trade barriers

Worked exampleAn importer buys a bike abroad for £400. The government puts a 15% tariff on imported bikes. How much does the bike now cost the importer?
  1. Tariff = 15% × £400 = £60The tariff is a percentage of the import’s value.
  2. Cost = £400 + £60 = £460The importer pays the price plus the tax.
£460 (the government receives £60)
Exam tipFor full marks on a definition of free trade, mention no barriers such as tariffs. Just writing ‘international trade’ gets only partial credit.
Free trade
Trade between countries without tariffs, quotas or other government barriers.
Tariff
A tax on imported goods.
Quota
A limit on the amount of a good that can be imported.
Protectionism
Government policies that restrict imports to protect home producers.
3.2.4.3 Arguments for and against free trade

Arguments for and against free trade

The debate is long-running, and both sides have strong arguments. Economists generally see gains from trade, but those gains aren’t shared equally.

  • Who gains, who loses? Consumers usually gain a little each from lower prices, spread across millions of people. The losses tend to fall heavily on fewer people: workers and firms in industries facing new competition.
  • Time matters: in the short run, workers who lose jobs may be structurally unemployed; in the long run they may retrain and move into growing industries, but not everyone can.
Arguments for free tradeArguments against (for some protection)
Lower prices for consumers and cheaper inputs for firmsJob losses in home industries that can’t match cheaper imports
More choice and quality from around the worldLocal firms may close, hitting particular towns and regions
Specialisation raises world output and incomesInfant industries: new firms may need time to grow before facing world competition
Wider markets for exporters, with economies of scaleLost tax revenue: no tariff income, and less income tax if jobs go
Competition pushes home firms to be more efficientStandards and safety: imports may be made under rules some people think are weaker
Avoids retaliation and trade warsStrategic industries (energy, food, steel, defence) may need protecting for security
Exam tipIn a judgement question, don’t just list both columns. Weigh them: how big are the price cuts, how many jobs are at risk, can workers retrain, and is there a safety or security issue? Then conclude.
Infant industry
A new industry that may need temporary protection until it is big enough to compete.
3.2.4.3 Free-trade agreements such as the EU

Free-trade agreements and the EU

A free-trade agreement (FTA) is a formal deal between two or more countries to remove trade barriers between them and not to add new ones.

  • Benefits of FTAs: lower prices, as imports from partners face no tariffs; firms can sell freely across all member countries; firms can source parts or production from lower-cost partners; closer cooperation between members.
  • Free-trade area: no tariffs or quotas between members, but each member sets its own tariffs on non-members.
  • Customs union: a free-trade area plus a common external tariff, so members charge the same tariff on goods from outside.
  • The European Union (27 countries) goes further. It is a single market: one territory without internal borders or other regulatory obstacles, with free movement of goods, services, capital and people. It is also a customs union.
  • Free movement of people lets workers move to where jobs are, and gives firms a bigger pool of labour.
  • The World Trade Organization (WTO) sets global rules of trade and helps settle disputes between countries.

A free-trade area and a customs union compared

NoteAQA’s specification (written in 2016) says ‘free-trade agreements, such as the EU’. The UK has since left the EU, so learn the EU as an example of a free-trade area and single market, and the UK’s newer deals in the next section.
Free-trade agreement
A formal agreement between countries to remove trade barriers between them.
Customs union
A free-trade area whose members also charge the same tariff on imports from outside.
EU single market
The EU as one territory with no internal borders or regulatory obstacles to the free movement of goods, services, capital and people.
World Trade Organization (WTO)
The international body that sets global trade rules and helps settle disputes.
3.2.4.3 Free-trade agreements

UK trade after leaving the EU

  • 31 January 2020: the UK left the EU.
  • 1 January 2021: the UK–EU Trade and Cooperation Agreement (TCA) began to apply. Goods that meet its rules can cross with no tariffs or quotas.
  • But the UK is no longer in the single market or customs union, so traders face customs declarations, checks and paperwork, and the deal covers far less of services trade.
  • Free movement of people between the UK and the EU ended.
  • The UK can now make its own trade deals. As of September 2026, GOV.UK listed agreements in effect including the TCA, the CPTPP (a trade agreement between countries around the Pacific) and a UK–India trade deal.
Points made in favour of leaving the single market and customs unionPoints made against
The UK sets its own tariffs and makes its own deals with fast-growing economiesExtra paperwork and checks raise costs, especially for small firms and fresh food
The UK makes its own rules on product standardsLess access for services, the UK’s biggest export strength
The UK decides its own immigration rulesHarder to recruit EU workers in some sectors
Stay balancedPeople disagree strongly about Brexit. In the exam, give the economic arguments on both sides and attribute views (‘supporters argue…’, ‘critics say…’). There are marks for weighing the evidence, not for which side you take.
Dated factsTrade deals change. The list above follows GOV.UK’s ‘UK trade agreements in effect’, updated 1 September 2026 and last checked November 2026.
Trade and Cooperation Agreement (TCA)
The UK–EU trade deal that has applied since 1 January 2021: no tariffs or quotas on qualifying goods, but customs checks.