24. International Trade
Learning Outcomes from this chapter
On completion, you should be able to:
- Outline what an open economy is
- Explain what trading blocs are and the benefits of being a part of one
- Distinguish between different types of imports and exports
- Calculate the balance of trade and balance of payments
- Illustrate different barriers to trade between countries
- Discuss the reasons a government would engage in protectionism
- Explain the effects of barriers to trade being imposed on the Irish economy
- Discuss the opportunities and challenges of the changing nature of the global economy
Open economy
A country that engages in international trade, exporting (selling) goods and services to other countries and importing (buying in) goods and services from other countries
Terms in international trade
| Trading bloc | Group of countries that allow free trade among them |
| Free trade area | Members trade freely with reduced/no tariffs or barriers |
| Customs union | Members trade freely and impose common tariffs on non-members |
| Deregulation | Reduction or elimination of legal barriers that prevent entry into a market |
Elements of trade
| Visible exports | Purchase of Irish goods by a foreigner |
| Invisible exports | Purchase of an Irish service by a foreigner |
| Visible imports | Purchase of foreign goods by someone in Ireland |
| Invisible imports | Purchase of a foreign service by someone in Ireland |
Balance of trade
The difference between visible exports and visible imports
Visible exports > Visible imports = Balance of trade surplus
Visible exports < Visible imports = Balance of trade deficit
Balance of payments
The difference between total exports (visible exports + invisible exports) and total imports (visible imports + invisible imports)
Total exports > Total imports = Balance of payments surplus
Total exports < Total imports = Balance of payments deficit
Protectionism
Actions taken by a government to protect their home industries by restricting foreign competition, using barriers to trade
| Barrier | Explanation |
|---|---|
| Tariff | Tax on an import to raise the price and discourage consumption |
| Embargo | A total ban on importing a certain type of product from a given country |
| Quota | A physical limit on the number of units of a certain good that can be imported |
| Subsidies | Grants/payments from a government to a producer to lower operating costs |
| Administrative regulations | Slow down imported goods (e.g. customs delays, excessive paperwork for imports) |
Impact on Irish businesses of changing trends in international trade
| Trend | Explanation |
|---|---|
| Currency fluctuations | Weaker currencies in trade partners can lower demand for goods |
| MNCs locating in Ireland | Ireland’s skilled workforce and low corporation tax (12.5%) has attracted many large MNCs (e.g. Facebook, Google, Pfizer) |
| Protectionism | Brexit may lead to customs checks, import duties and administrative delays |
| Emerging markets | China, India, Brazil, Russia and Turkey are transitioning from being developing economies to becoming developed economies |
| Newer EU member states | Czech Republic, Hungary and Slovakia economies are growing, with lower wages and costs than those of Irish businesses |
Opportunities and challenges for Irish business trading with non-EU countries
Opportunities
- Improvements in technology/ICT
- Emerging markets to export to
- Diversification in new markets reduces overall risk
- Ireland’s image as a ‘green’ country
Challenges
- Globalisation allows lower-cost countries to compete
- Currency/exchange rate fluctuations (e.g. could make Irish exports more expensive)
- Language and cultural differences need to be considered when adapting goods/services