international trade ch 29 Flashcards
international trade
the exchange of goods and services between countries i.e. importing/exporting products
open economy
an economy that engages in international trade i.e. goods/services traded between countries
imports
goods/services bought from other countries
-> money leaves ireland
exports
goods/services sold to other countries
-> money comes into ireland
visible trade
buying/selling physical goods
invisible trade
buying/selling services
visible imports
physical goods that irish firms/individuals buy from foreign countries
invisible imports
services that irish firms/individuals buy from foreign countries e.g. taking flight with american airline
visible exports
physical goods that irish firms sell to other countries
invisible exports
irish services sold to customers in foreign countries e.g. german person takes ryanair flight
reasons for irish businesses’ involvement in international trade (imports)
-ireland does not have enough natural resources e.g. oil and gas -> need to import raw materials
-climate not suitable for growing certain products
-improves standard of living -> wider range of goods/services + competitive prices
reasons for irish businesses’ involvement in international trade (exports)
-profitability -> wider market abroad
-economies of scale reduce costs
-diversification into new markets lowers risk i.e. lower dependence on irish market
balance of trade
BoT: measures difference between visible imports and visible exports (physical goods)
surplus or deficit or balanced
balance of payments
BoP: measures difference between total exports and total imports (visible and invisible)
balance of trade deficit
-imports > exports
-more money leaving country
-govt may have to increase tax to raise income
-job losses as firms need less employees
balance of trade surplus
-exports > imports
-govt may be able to reduce taxes
-higher employment, more disposable income, better standard of living
overcoming BoT deficit
-increase exports
-reduce imports e.g. import substitution, protectionism
-try adapt products to use domestic raw materials e.g. strawberry rather than lemon flavoured products
importance of international trade to irish businesses
-larger markets -> increased sales
-lower costs -> economies of scale
-business can expand + become TNC
-allows firms to buy raw materials that aren’t available domestically
importance of international trade to irish consumers
-wider variety of goods
-better quality goods -> competition + skill e.g. german cars
-lower prices -> increased competition
-infrastructure built for international trade e.g. transport/communication links also benefit consumers
importance of international trade to irish economy
-exports bring in foreign currency -> helps pay for imports
-BoP surplus helps country to repay loans/invest overseas
-more exports increases employment -> reduces social welfare + more income tax rev.
-builds international relationships -> more cooperation, less conflict
trading bloc
countries in a trading bloc create a free trade area and agree to reduce/eliminate barriers to trade between member countries e.g. EU, USMCA (US-mexico-canada agreement)
free trade
enables countries to buy/sell each other’s goods/services without barriers to trade such as tariffs, quotas, embargoes
WTO
world trade organisation: international agency that aims to promote free trade. negotiates with govts to remove taxes/barriers to trade.
-monitors free trade agreements + helps settle disputes between govts
deregulation
occurs when trade barriers are reduced/removed from a market, which enables firms to enter and trade in the market
protectionism
occurs when govts introduce barriers to trade e.g. tariffs, quotas, embargoes to protect domestic industries from foreign competition
reasons for protectionism
-allow new industries to grow/become competitive
-protect domestic jobs
-raise tax rev -> e.g. tariffs on imports
-national security -> protect industries of strategic importance e.g. electricity
-consumer protection -> e.g. EU restricted poultry imports to stop spread of avian flu
barriers to trade
-tariffs
-quotas
-embargoes
-subsidies
-administrative regulations
tariffs
tax placed on imported goods. encourages purchase of domestic products
quota
limit on the number of products that may be imported e.g. clothes from china
-discourages imports + encourages sale of domestic products
embargo
complete ban on all imports from or exports to a particular country. often imposed for political, economic or environmental reasons e.g. 1973 OPEC embargo
subsidy
govts give financial support to a domestic industry -> can make domestic products cheaper than foreign competition
administrative regulations
creating customs delays or demanding excessive paperwork to make importing as difficult as possible
trends in international trade
-growth of globalisation
-improvements in transport infrastructure -> trade faster + more efficient
-developments in ICT e.g. websites, e-commerce -> easier to engage in IT
-increase in trade agreements + trading blocs
-growth of new markets e.g. brazil, russia, india (BRICS)
-increasing international competition -> low cost economies
impact of ICT on international trade
-quicker communication
-improved decision making -> internet
-websites + e-commerce increase sales -> low cost promotion + sales
-lower costs e.g. video conferencing reduces need for meetings
-marketing -> websites + social media -> interact to build loyalty
opportunities for irish businesses in international trade
-access to larger markets
-educated workforce (attracts FDI)
-govt aid e.g. enterprise ireland
-EU membership -> access to EU free market of 500 mil. countries set up here + increase employment + multiplier effect
-english is a key international business language
-‘green’ image is a USP when selling abroad
challenges for irish businesses in international trade
-expensive to run business in ireland -> makes irish goods/services more expensive than low cost economies
-must translate websites, packaging, advertising into foreign languages
-island location -> expeensive + slow to transport by air or sea -> less competitive
-must understand cultural differences to avoid offense
-exchange rates: if euro strengthens against foreign currencies, exports become more expensive -> decline in sales
-difficult to collect debts -> physical distance/ legal differences
