International Trading

Environment

What is Home/Domestic Trade?

Buying and selling of goods & services in our own country.

Open Economy (2010 Q 3. (a))

Is a country that imports & exports goods & services.

Ireland is a Small Open Economy. We export approx 80% of what we

produce. Open economies have a wide choice of

raw materials & finished products.

What is International Trade?

What is International Trade? Importing: buying goods & services

from other countries.

Exporting: selling goods & services to other countries.

Who are our main Trading Partners?

COUNTRY CURRENCY LANGUAGE

USA Dollar English

Britain Sterling English

Europe Euro + others Various

Japan(importing)

Yen Japanese

What are imports? Goods and services that we buy

from other countries.

Money leaves Ireland.

Why do we import? To obtain natural resources that are not

available in Ireland. Eg. oil We have an unsuitable climate for certain

foods such as bananas, coffee….. To avail of services not in Ireland. Eg. pop

groups, foreign holidays, watch making. To have variey and choice of goods &

services.

Visible Imports Goods which are bought from

other countries. Money leaves the country Eg. citrus fruit, wine, cars……..

Invisible Imports

Services that are bought from other countries.

Money leaves the country. Eg. Irish person on holidy in USA BEP in concert in Dublin French horse winning Irish Grand National

What is Import Substitution?

Buying Irish goods instead of foreign goods.

Eg. buying Irish potatoes instead of Spanish potatoes.

What are Exports? Irish goods and services that we sell

to foreign countries.

Money comes into the country.

Why do we export? To obtain foreign currency needed to buy

our imports. Ireland is a small country so we need a

wider market such as EU, USA etc. Diversification means less dependency on

one market if a country is in recession. Selling more means more jobs are

created.

Visible Exports

Irish goods that are sold to foreign countries.

Money comes into the country.

Eg. Irish beef sold abroad. Tullamore Dew sold to UK Waterford Crystal sold to US.

Invisible Exports Irish services that are sold to foreign

countries. Money comes into the country. Eg. Westlife playing in Wembly. US citizen on holidy on Ireland. Irish horse winning the English Grand

National.

What is the Balance of Trade? (TV)

Visible Exports – Visible Imports

What is the Balance of Invisible Trade?

Invisible Exports – Invisible Imports

What is the Balance of Payments?

Total Exports – Total Imports

Balance of Trade/Payments can be…….

Surplus: Exports greater than Imports

Deficit: Imports greater than Exports

Balanced: Exports = Imports

Benefits of a Balance of Payments Surplus

More money coming into the country. This money can be used to pay off

some of our debt or reduce tax. More money and jobs and a

better standard of living for Irish people.

What problems will a Balance of Payments deficit cause?

Too much money leaving the country. Government will have to raise taxes of

borrow. Irish people will loose their jobs.

How can a Balance of Payments Deficit be reduced?

Import substiution: Buy Irish!

Government Agencies such as An Bord Trachtala, Failte Ireland and An Bord Bia can promote Irish exports.

Free Trade Countries can buy and sell without any

trade barriers or restricitions eg. customs duties being imposed.

The 27 countries of the EU enjoy free trade.

Note Norway & Sweden members of.....

Protectionism Countries try to stop foreign imports. Countries try to help their own

businesses export. They do this by using trade barriers. Eg. Tariff, quota, embargo, subsidy.

Trade Barriers

1. Tariff Is a tax that a coutry adds on to

imports. Eg. customs duty/import duty. This makes imports dearer & less

attractive to consumers.

2. Quota Countries put a limit on the amount of

a good that can be imported. Consumers then must by from

indigenous businesses. The EU has a quota on the no. of

Chinese garments it will allow into the EU.

3. Embargo Countries puts a complete ban on goods

being imported from a certain country. Consumers have no choice but to buy

home produce. The USA has a trade embargo with Cuba. During apartheid Ireland had a trade

embargo with South Africa.

4. Subsidy Is a direct payment to a producer. It reduces the cost of production. It makes exports cheaper. It boosts employment. It improves the balance of trade. Eg. Irish farmers obtain direct farm

payment from the EU.

Exam Question

Distinguish between Grant & Subsidy 2003 SQ no. 7.

Impact of the Changes in the International Economy 10, 06, 00

1. Globalsation: Businesses that treat the world as one

big market are on the increase. Eg. Coca-Cola, McDonalds, Sony, toyota.

Opportunity:Ireland can attract TNC’s. Challenge: Irish businesses need to

compete on the world stage.

2. Improved ICT Many business are trading on the internet. Small businesses can now compete on the

world stage. Reduction in costs due to no shops being

required, lower transport costs. Quicker decision making. However, Irish firms face competition

from foreign firms selling on the interne.

3. Increase number of trading blocs

A trading bloc is a group of countries that agree to buy & sell from each other without trade barriers, but may impose barriers to non members.

Eg. North American Free Trade Agreement(NAFTA) Usa, Canada & Mexico

Eg. European Union (EU). Opp: Ireland is the only English speaking…. Challenge: Increased competition from EU co.’s

4. Deregulation Removal of trade barriers & government rules

& regulations that prevent free trade. World Trade Organisation: Is a group of over

150 countries that negotiate in “trade rounds”. The aim is to increase world trade. Applies to goods & services. Good for Irish business as they can increase

sales. Threat for Irish business due to competition.

5. New/Emerging Markets Former communist countries are

beginning to develop. Eg. Poland, Russia, Latvia….

China is now allowing international trade. This allows Irish business to increase

sales. However there is a threat of TNC’s

relocating to low wage countries.

6. Influence of powerful TNC’s

TNC’s volume of trade has increased so much that the may be more powerful than some countries in which they operate.

Small firms find it difficult to compete with TNC’s.

TNC’s will locate in the most cost effective country.

They may try to influence the economic policies of some countries.

While Ireland benefits from TNC’s……………..

7. Global recession The banking crisis has triggered a

worldwide down turn in economic activity.

The credit crunch means that there is less money available for bconsumers to spend & businesses to borrow.

Opp: Reduce waste & cut costs. Challenge: Job losses, bankruptcy.

Exam Question What are the opportunities &

challenges for Ireland in developed & developing markets?

What are the opportunities & challenges for Ireland in international trade?

Question 3 07, 06, 99

Opportunities 1. Increased Sales: Ireland is a member of the EU with

access to over 500 million consumers. Deregulation due to the WTO has also

allowed Ireland to export all around the world with fewer barriers and regulations.

2. Economies of Scale Irish exporters must mass produce to

satisfy international demand. The more they produce the cheaper

the cost per unit. International trade helps Irish business

become more efficient & competitive.

3. English Speaking/Educated & Green

Ireland is the only English speaking country using the Euro.

Ireland has an educated workforce. This makes Ireland attractive to TNC’s

that want access to the EU market. Our green image attract tourists &

makes it easier to export food products.

Other opportunities Diversification Earn foreign currency Irish firms become TNC’s Ireland attract TNC’s

Challenges 1. Competition from low wage economies: TNC’s will locate in the most cost

effective countries. Emerging former eastern bloc countries

such as Poland have lower wage rates & are attracting TNC’s.

There is also more competition…………….

2. Foreign language: Although English is the international

language of business, consumers want to use their own language.

Ads may become lost in translation. Eg. KFC “finger-lickin good” translated

into Chinese as “eat your finger off”. Jif changed to Cif due to difficulty with

J….

3. Exchange Rates: If the euro increases in value exports

become dearer and imports become cheaper. (happening now with €1 = £0.90).

If the value of the euro decreases in value then exports become cheaper and imports become dearer. This will make raw materials such as oil more expensive.

Other problems connected with foreign trade.

Transport Insurance Safety standards Payment Cultural differences

Role of ICT in International Trade

1. Increase sales: e-commerce is using the internet to sell

products all around the world either through websites or e-bay.

2. Advertising: Using MSN or Yahoo to advertise

golbally.

3. Faster & cheaper communications

E-mail is faster than “ snail mail”. Businesses can e-mail documents

worldwide for a flat monthly fee. EDI: Electronic Data Interchange,

sending standardised documents to other firms that you deal with regularly.

4. Decision-making WWW is a vast library of information. Managers can access information it

needs about trading partners. More informed decisions can be made

5. Reduced Costs Video-conferencing allows virtual

face-to-face meetings without travel. Live pictures & sound are sent via the

internet or satellite. This reduces cost as no flights or

accommodation is needed. e-banking reduces fees….

Government help for exporters

Enterprise Ireland provide: Market research in foreign countries. Low cost loans to exporters. Grants to experters. Training & advice on international trade

such as labelling, documents & payment.

Department of Enterprise, Trade & Employment.

Gives advice on documents used & regulations to be followed when exporting.

Provide Export Credit Insurance: This is where the government pay the

Irish exporter if a foreign customer does not pay.

Exam Questions Short 10 Q 3 Ex rate 07 Q 6 Trading Bloc 06 Q 10 Bal of

Trade.. 02 Q 6 Ex rate 02 Q 9

Deregulation

Long 10 Q 3 (b) Changes in

Int 07 Q 3 (a) Opp of Int Tr 06 Q 3 (c) Change in Int 04 Q 3 (c) Opp of Int Tr 00 Q 3 (c) Change in Int 99 Q 3 (a) Opp & chall

of international trade