International trade is the exchange of goods and services across borders, which connects Ireland to the global economy. In the Junior Cycle exam, you will calculate trade balances and currency conversions, distinguish visible from invisible trade, and debate the benefits and challenges of globalisation for Ireland.
An Open Economy: Imports, Exports, and Trade Types
Ireland is a small open economy, meaning we buy and sell goods and services freely with other countries. Because of our climate and resources, we cannot make everything ourselves, so trade is essential.
- Exports: goods and services sold abroad; money comes into Ireland.
- Imports: goods and services bought from abroad; money goes out of Ireland.
| Trade Type | Irish Export Example | Irish Import Example |
|---|---|---|
| Visible (physical goods) | Kerrygold butter sold in the USA | German cars bought by Irish dealers |
| Invisible (services) | French tourists spending money in Kerry | An Irish family holidaying in Spain |
Measuring Trade and Currency Exchange
The government tracks trade performance using two distinct measurements:
Balance of Trade = Visible Exports − Visible Imports
Balance of Payments = Total Exports − Total Imports (visible + invisible)
- A surplus means exports exceed imports, so more money enters the country than leaves.
- A deficit means imports exceed exports, so more money leaves the country than enters.
Trading outside the eurozone requires exchanging currencies at a set rate of exchange:
- Euro into foreign currency: multiply by the rate.
- Foreign currency back into euro: divide by the rate.
Benefits and Challenges of International Trade
Trading internationally brings major opportunities along with serious practical obstacles.
Benefits
- Bigger markets: Irish firms can sell beyond Ireland's small population, increasing sales, profits, and job creation.
- Consumer choice: Irish shoppers can buy goods we cannot produce naturally, such as oil, bananas, and tea.
- EU membership: Irish businesses sell tariff-free across the EU single market to around 450 million consumers, and Ireland receives EU grants for farming and infrastructure.
Challenges
- Foreign competition: Local firms must compete against cheap imports and large global rivals.
- Transport costs: as Ireland is an island, sending goods by sea or air costs more.
- Currency and language: outside the eurozone the exchange rate can change, and firms must pay to translate packaging and advertising.
Globalisation and Multinational Companies
Globalisation is a process of international integration emerging from the interchange of world views, products, services, ideas and other aspects of culture. A multinational company (MNC) operates in more than one country, such as Apple, Google, or Pfizer.
Why MNCs locate in Ireland
- A low rate of corporation tax (12.5%), which leaves MNCs with higher profits.
- Full access to the European Union single market without trade barriers.
- A skilled, English-speaking workforce, plus grants and support from IDA Ireland, the state agency that attracts foreign companies to Ireland.
Impact on Ireland
MNCs create thousands of well-paid jobs, hire local suppliers, and pay significant taxes. However, many are footloose, meaning they can easily shut down and relocate to cheaper countries if economic conditions change.
Barriers to Trade
Governments outside free-trade areas sometimes use barriers to protect domestic industries:
| Barrier | What it is | Effect on Trade |
|---|---|---|
| Tariff | A customs tax placed on imported goods | Makes imports dearer, encouraging people to buy local goods |
| Quota | A physical limit on the quantity of an item imported | Restricts foreign supply to protect domestic market share |
| Embargo | A complete legal ban on trading a specific good | Halts all trade, often for health or political reasons |
| Subsidy | Direct government financial aid to local producers | Lowers domestic production costs so firms can compete |
Under EU single market rules, Ireland cannot place tariffs or quotas on trade with other EU member states.
Key terms
- Open Economy
- An economy that engages in international trade and freely exchanges goods and services with other countries.
- Visible Trade
- The buying and selling of physical goods between countries that can be seen and touched.
- Invisible Trade
- The buying and selling of services between countries, for example tourism or insurance.
- Balance of Trade
- The difference between the value of a country's visible exports and visible imports.
- Balance of Payments
- The difference between total exports (visible and invisible) and total imports (visible and invisible).
- Rate of Exchange
- The price of one currency expressed in terms of another currency.
- Globalisation
- A process of international integration emerging from the interchange of world views, products, services, ideas and other aspects of culture.
- Multinational Company (MNC)
- A commercial business that has offices, factories, or operations in more than one country.
Check yourself
Is an Irish pop group earning money on a concert tour in Japan an invisible export or an invisible import?
It is an invisible export because money flows into Ireland as payment for a service.
Visible exports are €850m and visible imports are €920m. What is the Balance of Trade?
€70m Deficit (€850m − €920m).
You have €500 to convert to British pounds at an exchange rate of €1 = £0.85. How much sterling do you receive?
£425 (€500 × 0.85).
State two reasons why multinational companies choose to set up in Ireland.
A low corporation tax rate of 12.5% and tariff-free access to the EU single market.
What does it mean when a multinational company is described as 'footloose'?
It has no permanent ties to an area and can quickly relocate its operations to another country.