Business Paper 3 - International Trade (310)

International Trade

exchange of goods and services between countries - relates the the process of a business or country buying and selling products to and from other countries - often referred to as importing and exporting

Reasons for International Trade

• growth - expanding to new international markets allows businesses to grow more easily and quickly - providing them with cheaper materials or access to new customers

• increasing sale + profits - having access to cheaper materials o larger amount of potential customers is likely to increase the chance of the business making more sales and profits

• spreading technical knowledge - different countries have individuals with different technical knowledge, experiences and expertise - international trade allows businesses to benefit from this

Free Trade

a trade policy that does not restrict imports or exports

Advantages:

• increased exports - possibility of selling products in many different countries

• economies of scale - grow and gain eos (lower average costs per unit)

Disadvantages:

• increased competition for a business from foreign imports - business makes less profit + not able to survive against cheaper competitors

Protectionism

a trade policy of protecting domestic industries against foreign competition e.g tariffs, import quotas, subsidies

Advantages:

• help new industries become established as they are protected from competition

• raises revenue for government

Disadvantages:

• Higher prices for consumers – Less competition often means more expensive goods.

• Risk of trade wars – Other countries may retaliate with their own trade barriers, harming exports

Tariff

a tax on imports - product will be more expensive as a result of the tax and a home produced product could be cheaper in comparison therefore incentivising customers to buy these over the imported product

Import Quota

a limit on the number of imports allowed into the country - more expensive so consumers will buy more home-produced goods and when stock is gone, they are forced to buy home produced products

Subsidies

a government can subsidise home produced products - a sum of money granted by the government to keep prices low - may become lazy

Trading Bloc

a group of countries that work together to provide special deals for trading e.g EU

Single Market

a type of trade bloc in which the most trade barriers have been removed for goods e.g no tariffs, quotas etc.

Challenges of developing new international markets

• businesses must take into account local cultures, currencies and buying habits, language barriers, income

• other external factors such as exchange rate - fluctuations can cause lost orders or pressure on pricing therefore profits, different technological and health + safety standards - extra costs and prevent access to markets