Transcript Chapter 20

International Trading
Environment
Rachel Farrell & Aoife Healion
https://www.youtube.com/watch?v=ebRuQTgbZ3o
What is Home/Domestic
Trade?

Buying and selling of goods & services in
our own country.
What is International Trade?
What is International Trade?
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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?
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Goods and services that we buy from
other countries.
Money leaves Ireland.
Why do we import?
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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
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Goods which are bought from other
countries.
Money leaves the country
Eg. citrus fruit, wine, cars……..
Invisible Imports
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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?
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Buying Irish goods instead of foreign goods.
Eg. buying Irish potatoes instead of Spanish
potatoes.
What are Exports?
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Irish goods and services that we sell to
foreign countries.
Money comes into the country.
Why do we export?
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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
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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
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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
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Balanced: Exports = Imports
Benefits of a Balance of
Payments Surplus
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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?
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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?
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Import substiution: Buy Irish!
Government Agencies such as An Bord
Trachtala, Failte Ireland and An Bord Bia
can promote Irish exports.
Exam Question
Short Question 2006 Q 6
 Balance of Trade = VE – VI
19 – 11 = 8m
16 - 9 = 7m
Surplus 1m
 Balance of Payments = TE – TI
19 – 16 = 3m surplus

http://www.cso.ie/en/statistics
/balanceofpayments/
http://www.finance.gov.ie/what-we-do/economicpolicy/publications/presentations/irelands-reportcard-september-2014
Free Trade
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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.
Protectionism
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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
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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
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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.
http://www.thejournal.ie/russia-ban-europe-usfood-imports-1608068-Aug2014/
http://www.rte.ie/news/player/2014/0808/2062
9539-russia-imposes-full-embargo-on-eu-andus-food-imports/
http://www.irishtimes.com/business/sectors/mediaand-marketing/bank-of-ireland-stops-transfers-tocuba-due-to-us-embargo-1.1906726
4. Subsidy
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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.
Changes in the International
Economy 06, 00
1. Globalsation:
 Businesses that treat the world as one big
market are on the increase. Eg. Coca-Cola,
McDonalds….
 Opportunity for Ireland to attract TNC’s.
 Challenge for Irish businesses as a result of
increased competition.
2. Improved ICT
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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…..
3. Increase number of trading blocs
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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).
Ireland is the only english speaking….
Increased competition from EU co.’s
4. Deregulation
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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
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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.
There is also increased competition for …
6. Powerful TNC’s
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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……………..
Exam Question
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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.
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2. Economies of Scale
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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
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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
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Diversification
Earn foreign currency
Irish firms become TNC’s
Ireland attract TNC’s
Challenges
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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:
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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:
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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.
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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
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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
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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
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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
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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.
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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
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Short
07 Q 6 Trading Bloc
06 Q 10 Bal of Trade..
02 Q 6 Ex rate
02 Q 9 Deregulation
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Long
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