International Trade (Junior Cert Business Studies): Revision Notes
📚Revision Notes
International Trade
What is an open economy?
Ireland operates as an open economy, which means that people and businesses can freely exchange goods and services with other countries around the world. This is the opposite of a closed economy, where a country would only engage in domestic trade within its own borders.
Important
Open economy - An economy where goods and services are freely traded with other economies. Ireland's main trading partners include the United Kingdom, Germany, France, the United States, and China.
Ireland's position as a small, open, and export-focused nation means that international trade plays a crucial role in the country's economic growth. The nation has developed strong export capabilities, particularly in pharmaceuticals, technology, and agriculture sectors.
Note
The Irish government supports international trade through several key organisations that help businesses expand internationally and attract foreign investment to Ireland.
The Irish government supports international trade through several key organisations:
- Enterprise Ireland - Provides advice and support to help Irish businesses expand into global markets
- Bord Bia - Promotes Irish food products internationally
- Fáilte Ireland - Promotes Ireland as a tourist destination
- IDA Ireland - Encourages multinational companies to establish operations in Ireland
Ireland's competitive corporation tax rate has attracted many international companies to set up their European headquarters here, further strengthening the country's export capabilities and trade relationships.
National vs international trade
Understanding the difference between these two types of trade is fundamental to grasping how economies work.
Important
National trade (also called domestic trade) - The buying and selling of goods and services within a country's borders.
Example
Example: National Trade
When you purchase Avonmore milk from a local shop in Dublin, this represents national trade because both the product and the transaction occur within Ireland.
Important
International trade - The buying and selling of goods and services between people in different countries. This includes both importing and exporting.
Example
Example: International Trade
- Ireland imports BMW cars from Germany
- Ireland exports Kerrygold butter to the United States
Understanding imports and exports
Exports
Important
Exports - Goods and services produced in one country and sold to customers in another country. When Ireland exports, goods and services leave the country whilst money flows into Ireland.
Exports are vital for Ireland's economy because they generate revenue, create employment opportunities, and contribute to overall economic growth.
Why does Ireland export?
From an individual perspective:
- Creates employment - Businesses that export often need to hire more staff to meet international demand for their products and services
From a business perspective:
- Diversification - Exporting allows Irish companies to sell to a broader customer base beyond the domestic market, reducing dependence on local economic conditions
From a government perspective:
- Economic growth - Exporting enables Irish businesses to access larger international markets, leading to increased sales, revenue, and overall economic prosperity
Imports
Important
Imports - Goods and services brought into a country from another country for sale or use. When Ireland imports, goods and services enter the country whilst money leaves Ireland.
Why does Ireland import?
From an individual perspective:
- Greater choice for consumers - Importing provides access to goods and services that may not be produced domestically, ensuring consumers have a wider range of products to meet their needs
From a business perspective:
- Access to raw materials - Many Irish businesses depend on imported raw materials and components for their manufacturing processes, often at lower costs than domestic alternatives
From a government perspective:
- Global trade relationships - Importing encourages diplomatic and economic relationships with trading partners worldwide, promoting cooperation and cultural exchange
Visible and invisible trade
International trade is classified into two main categories based on whether physical goods are involved.
Visible trade
Important
Visible trade - The trade of physical goods that can be seen and transported from one country to another.
Example
Examples: Irish Visible Trade
Irish visible exports include:
- Irish food products (such as Kerrygold butter exported to Britain)
- Pharmaceuticals and medical devices
- Organic chemicals
- Computer equipment and software
Irish visible imports include:
- Motor vehicles (such as BMW cars from Germany)
- Tea, coffee, and oil
- Electronic equipment
- Clothing and textiles
Invisible trade
Important
Invisible trade - The trade of services that are provided without the physical movement of goods across borders.
Note
Invisible trade is often overlooked but represents a significant portion of Ireland's international trade, particularly in areas like tourism and financial services.
Example
Examples: Irish Invisible Trade
Irish invisible exports include:
- Tourism services (when French tourists visit Ireland and spend money here)
- Financial services provided by Irish banks to foreign customers
- Software development and consultancy services
- Intellectual property rights
Irish invisible imports include:
- Irish people going on holidays abroad (such as travelling to Spain)
- Banking services from foreign financial institutions
- Software licencing fees paid to international companies
- Entertainment services like streaming platforms
Challenges of international trade
While international trade brings many benefits, it also presents several challenges for countries like Ireland:
Note
Transport and environmental concerns - Moving goods around the world involves significant financial and environmental costs. Shipping and air transport contribute to pollution and carbon emissions, raising sustainability concerns.
Note
Competition pressures - Small Irish businesses often struggle to compete with large multinational corporations that benefit from economies of scale, allowing them to offer products at lower prices.
Labour standards - There are often concerns about workers' rights and conditions in some countries where goods are mass-produced, particularly in developing economies with different labour regulations.
Product quality and safety - Safety standards for imported products from outside the EU may not match the high standards required within EU member states.
Trade barriers - Various restrictions such as quotas, tariffs, embargos, subsidies, and trading blocs can make international trade more expensive or difficult to conduct efficiently.
Summary
Key Points to Remember:
- Ireland operates as an open economy, freely trading goods and services with countries worldwide
- Exports bring money into Ireland when we sell our goods and services abroad, creating jobs and economic growth
- Imports involve money leaving Ireland when we purchase goods and services from other countries, but provide consumers with greater choice
- Visible trade involves physical goods you can see, whilst invisible trade involves services
- International trade brings benefits like employment and choice, but also challenges including environmental costs and increased competition