International Trade

INTERNATIONAL TRADE

International TradeInternational Trade refers to business carried out between firms situated in different countries. If Irish firms purchase goods and services from other countries, it is referred to as importing. If they sell goods to other countries, it is referred to as exporting.

International trade

Shanghai – Busiest port in the world

Top Trading NationsRank Country Total International Trade

(Billions of USD)Date ofinformation

- World 27,567.0 2010 est.

- European Union (Extra-EU27) 4,475.0 2011 est.[28]

1 United States 3,825.0 2011 est.2 China 3,561.0 2011 est.3 Germany 2,882.0 2011 est.4 Japan 1,595.5 2011 est.5 France 1,263.0 2011 est.6 United Kingdom 1,150.3 2011 est.7 Netherlands 1,091.0 2011 est.8 South Korea 1,084.0 2011 est.9 Italy 1,050.1 2011 est.- Hong Kong 944.8 2011 est.10 Canada 910.2 2011 est.11 Russia 843.4 2011 est.12 Singapore 818.8 2011 est.13 India 792.3 2011 est.14 Spain 715.2 2011 est.15 Mexico 678.2 2011 est

Top Traded CommoditiesRank Commodity Value in US$('000) Date of

information

1 Mineral fuels, oils, distillation products, etc. $2,183,079,941 2012

2 Electrical, electronic equipment $1,833,534,414 2012

3 Machinery, nuclear reactors, boilers, etc. $1,763,371,813 2012

4 Vehicles other than railway, tramway $1,076,830,856 2012

5 Plastics and articles thereof $470,226,676 2012

6 Optical, photo, technical, medical, etc. apparatus $465,101,524 2012

7 Pharmaceutical products $443,596,577 20128 Iron and steel $379,113,147 20129 Organic chemicals $377,462,088 2012

10 Pearls, precious stones, metals, coins, etc. $348,155,369 2012

Reasons for International Trade• Natural Resources• Necessary Products• Raw Materials• Climate• Skilled Workmanship• Choice• Small Home Market• Foreign Currency

Balance of TradeThe balance of trade measures the total exports of physical goods against the total import of physical goods.Visible trade: The trade of physical goods. E.g. Cars, bananasSurplus: If total exports exceed total imports, there is a balance

of trade surplus.Deficit: If total imports exceed total exports there is a balance of

trade deficit. Import Substitution: This policy would help to ensure that the

balance of trade remains in surplus all the time. It involves consumers and businesses purchasing Irish made goods in place of imported goods.

Irelands balance of trade• “Ireland reported a trade surplus equivalent to 4153 Million EUR in October of 2010.

Exports remain the primary engine for Ireland's growth. Ireland has achieved the highest trade surplus relative to GDP in the EU. Ireland exports mainly agri-food, cattle, beef, dairy products, zinc, lead and aluminium. Ireland’s major imports are: data processing equipment, chemicals, petroleum and petroleum products, textiles and clothing. European Union is by far its largest trading partner, accounting for about 74% of exports and 60% of imports. Other major partners are U.S. and China.”

Balance of PaymentsThis measures the total exports against the total imports of a country during a particular period.Visible and Invisible: It includes both visible trade, i.e.

physical goods, and invisible trade.Invisible Exports: Invisible exports refer to foreign money

coming into Ireland from services, e.g. tourists coming to Ireland or ESB International carrying out electrical work abroad.

Invisible Imports: Invisible imports refer to Irish money being spent abroad on services, e.g. Irish people holidaying abroad or Irish people travelling to Britain with BA.

Surplus V Deficit.

Irelands balance of payments

Current account surplus over €3bn in 3rd Quarter

“The Balance of Payments current account surplus in the third quarter of 2012 was€3,049m - similar to the surplus in the second quarter of 2012 and significantlyhigher than the surplus in the third quarter of 2011- see Table 1. The merchandisesurplus of €9,465m in the quarter fell from a surplus of €10,004m in the secondquarter of 2012 and the invisibles deficit of €6,416m fell from a deficit of €6,769m.The services surplus continues to increase and at €1,551m was higher than in anyprevious quarter while net income outflows at €7,400m were similar to the previous quarter.”

Barriers to Trade/ProtectionismSome countries attempt to protect their home trade by creating barriers to free trade with other countries.Tax: Taxes have the effect of making imported goods more

expensive. Such taxes are illegal on trade within the EU.Quotas: This is where a limit is put on the quantity of certain

goods that can be imported into a country.Embargo: An embargo is a total ban on the importation of

certain goods into a country.Bureaucracy: The devising of complex importation

procedures, difficult levels of documentation etc.Transport costs: The cost of transport to some countries can

also act as a barrier to trade.

Changing nature of the International Economy

DeregulationRemoval of barriers: this refers to the opening up of all

areas of business to free competition.Equal footing: deregulation is good for business as firms

can now compete on foreign markets on an equal footing.Competition: Deregulation also means that Irish firms will

face greater competition on the home market.

Deregulation in Ireland

THE ENERGY regulator will deregulate the domestic electricity market when ESB’s market share falls to 60 per cent, it said yesterday.In a report published yesterday, the Commission for Energy Regulation (CER) said ESB would also have to commit to a plan to rebrand its supply business before the market would be deregulated, allowing ESB to compete with independent suppliers.

Thursday, April 22, 2010

Changing nature of the International Economy

PrivatisationState ownership: The move away from state ownership

and the end to state monopolies has meant that some firms have faced competition for the first time.

Changing nature of the International Economy

PrivatisationPublic Procurement: The creation of a single market has

meant that all state contracts must go to tender throughout the EU.

Changing nature of the International Economy

Transnationals• Increased number: There has been an increase in the

amount of transnational firms operating around the world. They are attracted to various countries through generous grants and incentives.

• Control Costs: As free trade increases throughout the world, these firms are better able to fight of competition and keep their costs down.

• New markets: The new and developing markets of Eastern Europe and Asia may offer a cheap labour/high quality option to transnationals currently operating in Ireland.

Changing nature of the International Economy

Information and Communications Technology (ICT)

Modern Development: Technology, particularly the Internet, has revolutionised trade. Firms can now operate global businesses from their own headquarters.

Instant Communication: Communication is instant, information is readily available to clients and potential clients all over the world, and sales can be made and orders dispatched over the computer

Technology

Changing nature of the International Economy

Emergence of New MarketsNew Markets: The collapse of communism and the

emergence of new markets in Eastern Europe, Asia and South America have opened up new opportunities for international trade.

Low Costs: These new countries are beginning to produce their own goods of high quality but at a much lower cost. These goods when exported will seriously challenge Irish products.

Growth of the BRIC countries

Russia

China

Shanghai 1990

Shanghai 2010

Changing nature of the International Economy

GlobalisationOne Market: Increasingly, firms have begun to treat the

world as one single market. This is referred to as ‘globalisation’ and the world is referred to as a ‘global market’.

Standard product: In many cases the products on sale are exactly the same in each country. Prices may vary depending on the competition in each market as well as other relevant factors.

Opportunities and Challenges for Irish Business

Opportunities• Free Trade: Irish firms have unrestricted access to

international markets. • Proximity: Ireland’s proximity to the European mainland

and its well developed transportation links facilitate international trade.

• Language: a large proportion of Ireland’s trade is with other English-speaking countries. English is also a second language for most of our European trading partners.

• Skilled Workforce: a highly skilled workforce is available within Ireland to assist firms in international trade.

Opportunities and Challenges for Irish Business

Opportunities• Increased Sales: International trade gives firms the

opportunity to increase their sales and thereby benefit from lower costs and economies of scale.

• Technology: Developments in technology make it easier for Irish firms to do business abroad. Advertising, marketing, transport and receiving payment have all been simplified by the Internet and other computerised systems.

• International Image: Ireland’s image abroad as an environmentally clean and safe country will assist Irish firms selling abroad, particularly those in the food industry.

Opportunites

• http://www.rte.ie/news/2009/0427/google-business.html

• http://www.finfacts.ie/irishfinancenews/article_1018555.shtml

Opportunities and Challenges for Irish Business

Challenges• Competition: Irish firms will face much greater competition, and

firms that are not cost-effective and efficient may be eliminated.• Distribution Costs: Irish firms will be at a cost disadvantage

because of our location as an island nation on the fringe of Europe.

• Language skills: Firms may have to recruit staff with particular language skills if they wish to trade in certain foreign markets.

• Securing Payment: Firms may experience difficulty when trying to get paid for the goods from firms operating in certain countries.

Opportunities and Challenges for Irish Business

Challenges• Low Wage Operators: Irish firms will have to compete

against the low wage operators of some Far Eastern countries.

• Market Requirements: Operating in new markets, especially those outside the EU, brings with it the need to be familiar with different documentation, cultures and traditions with different rules and regulations.

• Currency Fluctuations: Trading with firms situated outside the Eurozone will leave Irish firms exposed to the risk of currency fluctuations.

Challenges• http://www.propertyweek.com/news/ireland-shaken-by-dell

-poland-move/3131136.article

Why the importance on World Trade?• The world economy went into a deep depression in the

1930s, as many countries closed their barriers to trade with other states. This led to:

• Mass unemployment• Social upheaval• Rise of fascism and the Second World War

How to prevent this happening again?

• Global powers set up trading blocs and bodies to support international trade

• International Monetary Fund

• World Bank

• World Trade Organisation

• All countries encouraged to join these organisations, or face exclusion from benefits of free world trade

World Trade OrganisationThe WTO’s main role is to encourage the development of free

trade and to work towards an increase in global free trade.

Objectives:• To promote free trade by encouraging member countries to

remove or reduce barriers to trade that exist between them.• To ensure that no member country discriminates against any

other member country by offering them less favourable trading conditions.

• To work towards the eventual abolition of tariffs and subsidies within all areas of business.

• To ensure free trade exists in the trade of services as well as the trade in goods.

World Trade Organisation Members•