Brad Cartwright

Let's take a look at why we should study International Economics.

International economics is the study of how two distinct macroeconomies—two countries—interact with one another.  If you've taken my Global Economy Course, you know what I'm talking about.

It’s about understanding the connections that link nations through trade, currency exchange, and shared economic policies.

By studying this, we uncover the forces that shape the global economy, giving us insights into decisions that impact businesses, governments, and individuals alike.

When we embark on this journey, it’s helpful to know where we’re headed.

International economics is a big field, but it can be broken down into five core areas of study. Let’s explore what makes each one so fascinating.

1. Why Do Countries Trade?

At first glance, the question seems simple: why would countries trade with one another? But when we dig deeper, we find rich answers.

This unit explores the benefits of trade and introduces key concepts like absolute advantage and comparative advantage—ideas that explain why some countries specialize in producing certain goods.

We also examine the role of the World Trade Organization (WTO), the global body overseeing trade rules and ensuring nations benefit from their economic interactions.

Understanding why trade happens and how it’s managed provides the foundation for all international economics.

2. Free Trade vs. Protectionism

This is one of the most debated topics in economics: free trade vs. protectionism.

Free trade promotes the idea of open markets with minimal barriers, while protectionism argues for safeguarding domestic industries through measures like tariffs, subsidies, and quotas—all of which demonstrate the impact of government policies on international trade.

These concepts are especially relevant in today’s world, where countries constantly weigh the balance between economic growth and protecting their local industries.

3. Exchange Rates

Currency exchange rates are where international economics meets high-level government decision-making. There are three types exchange rate systems:

• Fixed exchange rates: Where a government ties its currency to another, like the U.S. dollar or gold.
• Floating exchange rates: Where currency values fluctuate based on supply and demand.
• Managed exchange rates: A hybrid system combining elements of fixed and floating.

Exchange rates affect trade directly.

For instance, if a company in the U.S. wants to buy goods from Chile, it needs to convert its dollars into Chilean pesos. This conversion impacts the exchange rate, which is influenced by global trade flows.

Understanding exchange rates helps us see how currency values ripple through the economy.

4. Balance of Payments

The balance of payments (BOP) may sound like an intimidating term, but it’s simply a record of all financial transactions between one country and the rest of the world. It tracks money coming in (exports) and going out (imports) and categorizes them into current and capital accounts.

While the terminology can feel like learning a new language, the underlying idea is straightforward: it’s all about keeping tabs on economic flows.

By analyzing the balance of payments, economists can assess the health of a country’s economy and its global financial relationships.

5. Economic Integration

Economic integration takes international economics to the next level by examining how countries deepen their trade relationships.

There are six stages of economic integration, ranging from free trade agreements to full economic unions, where countries share policies, regulations, and even currencies.

One of the most fascinating examples of integration is the European Union (EU), where member nations have formed a near-complete economic union despite being politically independent. Studying these levels of integration helps us understand the benefits and challenges of globalization.

Why It All Matters

International economics isn’t just about theories or abstract ideas—it’s about seeing the connections between what we learn in this course and the real world.

You’ll start noticing these concepts everywhere: in news reports about trade disputes, discussions of currency fluctuations, or debates over global economic policies.

By studying international economics, you’ll gain a better understanding of how the world works, from why your favorite products cost what they do to how governments navigate complex trade relationships.

It’s a subject that doesn’t just inform—it transforms how we see the global economy and our place in it.

If you are interested in learning more, join 6,300+ students worldwide who have purchased my online Global Economy Course.

Be good out there my friends and thanks for reading.