7.1.1 Global exchange as a system

Look at the label inside your T-shirt. It may list one country of origin, but that doesn’t show all the international exchanges behind it. The cotton could have been grown in Benin, spun into yarn in Turkey, dyed and sewn in Bangladesh, shipped to Hungary, and sold online through a company in Spain. Millions of people and thousands of decisions shape the shirt you wear. But no one planned this entire chain. It exists because a vast web of relationships, rules, and infrastructure allows people, materials, and ideas to move across borders.

This web is global exchange. It is one way societies meet their needs, share knowledge, and culture. These exchanges go far beyond buying and selling goods and services. Families migrate to earn a living and provide for their families, care for others, and send money across borders. States share data or security information. Communities across borders cooperate to manage rivers or fisheries. All of these relationships and flows link people and places across the planet.

The interactive and narrated map below (push play), shows how connected the world is through international shipping routes. The data is from 2012, so there are even more connections today, but the points made in the narration still hold.

A system is made of parts that interact through relationships to perform functions (Section S.1). When we study global exchange, we look for its parts (who and what is involved), relationships (how they connect and where), functions (what it does and why), and emergent patterns (what arises from those interactions).

Thinking in systems helps us see the global economy as something living and dynamic. Instead of a simple line of trade of goods and services leaving one country and entering another, we see a network of people, institutions, and ecosystems constantly influencing one another. Changes in one part of the trade system ripple through the rest of the system, just as a change in one species can affect a whole food web. 

Parts of global exchange

The first group of parts are actors, individuals and organisations, that make decisions and interact within and between different ways of provisioning:

• households and commons: people who live together,  or organise together in wider communities, and provide labour, creativity, and care, and decide what to produce or consume (Topic 2 and Topic 4);

• firms: people in businesses plan, design, manufacture, and distribute goods and services in markets (Topic 3);

• states: people working through government organisations create conditions for households, commons, and markets to function and guide change (Section 5.1.3);

• international organisations: groups such as the United Nations, International Monetary Fund (IMF), World Bank, World Trade Organization (WTO), and International Labour Organization (ILO) help countries cooperate, provide funding, manage crises and resolve disagreements.

Relationships of global exchange

Connections between parts are the system’s relationships. Some are based on written rules, others on trust, habit, history, or power. A few examples give you an idea of the diverse relationships.

Trade agreements between countries set the rules and conditions of exchange of goods and services. Financial regulations and exchange rates influence how money moves between countries. Migration laws affect where people can live and work. Environmental treaties connect countries through shared responsibilities and cooperation on the atmosphere, forests, and oceans. Other international agreements on human rights and labour also influence flows across borders. Digital technologies create new relationships every day as data and ideas travel instantly around the world.

Because these connections mix formal rules with social norms and human trust, the system is never fully predictable. A new law, a port closure, or a social movement in one place can impact parts, relationships, and flows elsewhere. For example, the recent closure of the narrow sea passage of the Strait of Hormuz (Section 7.3.4 - coming soon!) impacted fertiliser transport, farming and food prices far away from the Strait.

Functions of global exchange

International exchange has economic, social, and ecological functions. It can enable people to obtain products and knowledge that cannot be produced locally. It supports specialisation, so regions may be able to focus on what they do best, bringing lower costs of production and prices, and better quality. Exchange can encourage learning and innovation as ideas and technologies move and adapt between contexts. It provides livelihoods and income through trade, employment, and cooperation, and allows remittances, or transfers of money from people living in another country, that sustain families and communities. Cultural exchange fosters creativity and understanding, while shared management of global resources, such as the climate and oceans, requires cooperation across borders.

There are also significant downsides to global exchange and these will be explored in later sections, especially in Subtopic 7.3- coming soon!.

People, institutions, infrastructures and rules interact over time to shape the flow of goods and services, resources, money, people, energy and information across the planet. Together, these interactions cause a pattern of growing cross-border connection to emerge. No single person or organisation designs this pattern. Economists call it globalisation. The examples below show how globalisation works in practice.

• Resilience and fragility: Global connections can make systems more resilient, able to adapt to change. If goods come from many places instead of just one, societies may be able to cope better when something goes wrong. Yet the same links can spread harm quickly. When trade routes, financial systems, or digital networks are tightly connected, crises such as a financial panic, computer virus, or shipping delay can quickly spread across borders (Figure 4). Diversity, redundancy, and local capacity increase resilience (Section 1.2.5). Over-concentration increases risk, especially for countries that rely heavily on importing essentials like food and fuel.

The T-shirt on your back, the food you eat, and the messages on your phone are all part of a shared network linking households, markets, commons, states, and the living Earth. When global exchanges stay within ecological limits and support human wellbeing around the world, the global system can remain stable and adaptive. When they undermine ecosystems or exclude large parts of the population, the system becomes stressed and fragile. Understanding globalisation as an emergent system helps us see both its possibilities and its dangers. 

Concept: Systems

Skills: Thinking skills (transfer)

Time: varies, depending on option

Type: Individual, pairs, or small group

Option 1: Common items and global exchange

Time: 30 minutes

In this section, you learned that everyday goods are part of a global exchange system made up of parts, flows, and relationships.

Choose one physical good that has come from another part of the world. This could be:

• an item of clothing you are wearing,

• an electronic device,

• or another object with a country-of-origin label.

Using ideas from this section, create a simple system sketch or short explanation showing how your item is part of global exchange. You could draw a map with arrows, make a flow diagram, or write a short labelled paragraph. You might not have precise information about parts and relationships, but imagine what might be involved. Try to include:

• at least three parts

• at least two flows or relationships

Consider: What does this item help you see about how goods are connected to people and places around the world?

If you have time, discuss your sketch and the question with a partner.

Option 2: Globalisation patterns

Time: 30 minutes

If needed, re-read the section “What patterns emerge when these parts and relationships interact?”

Individually, choose one of the patterns listed:

• interdependence

• cooperation and creativity

• concentration of power and inequalities

• resilience and fragility

• feedbacks between people and nature

1. Explain the pattern in your own words, using one short paragraph.

2. Give one concrete example that helps show this pattern. Try to consider an example not mentioned in the text if you can.  This could be something you have heard about in the news, learned in another part of the course or a different course, or something you have experienced.

Next, work with a partner who chose a different pattern. Explain your pattern to each other.

Together, discuss: How, if at all, do these two patterns connect? Do they ever reinforce each other

As hospitals filled with patients, a new problem appeared: shortages of masks, gloves, and protective clothing. China supplied a large share of the world's medical masks and protective equipment before the pandemic. When COVID-19 hit China first, factories there switched to meeting demand at home, and China's exports of this equipment dropped by about a quarter in the first two months of 2020. Prices for surgical masks rose sharply, in some places to around six times their usual price. Some other countries then restricted their own exports of protective equipment too, which made the shortage worse for everyone.

When vaccines became available in late 2020 and 2021, a similar pattern appeared, but this time it showed something about power. High-income countries, home to about one in five people worldwide, used their money and negotiating power to buy over half of the world's vaccine doses directly from manufacturers. COVAX, a global initiative meant to share vaccines fairly, could only offer a much smaller share, so lower-income countries had to wait far longer for supplies. The countries with the most money and power shaped who got vaccinated first, not need alone.

Later in the pandemic, shortages spread to other goods, such as computer chips used in cars and electronics. This happened for several reasons at once: factories closed or slowed down during lockdowns, ships were delayed at busy ports, and demand for electronics rose sharply as more people worked and studied from home. Some countries responded by trying to manufacture more essential goods, such as medical supplies and computer chips, closer to home, so they would depend less on distant suppliers in a future crisis.

Questions to consider:

1. Identify three parts of the global exchange system that appear in this case study. What role does each one play?

2. Name one relationship in the case study that helped the virus spread, and one that could have helped contain it.

3. The case study describes high-income countries using their power to secure most of the early vaccine supply. Which part of the global exchange system gave them this power, and what does this suggest about how power and money can shape outcomes for other countries?

4. Which emergent pattern from the text (interdependence, cooperation and creativity, concentration of power and inequalities, resilience and fragility) best explains the vaccine shortage in lower-income countries? Justify your choice.

5. Some countries decided to manufacture more essential goods at home after the pandemic. Using resilience and fragility, explain why they might have made this decision, and what they might gain or lose by doing so.

Ideas for longer activities and projects are listed in Subtopic 7.5 - coming soon!

• Planet Money’s T-Shirt Project – A video series from NPR’s Planet Money following the global supply chain of a simple cotton T-shirt, from cotton farms to factories to shipping networks. It highlights the role of globalisation, trade agreements, and labour conditions in modern manufacturing. Difficulty level: easy.

• How Containerization Shaped the Modern World – A short animated video from TED-Ed explaining how the invention of shipping containers revolutionised global trade, making it faster and cheaper, but also contributing to job losses in local industries and increased global economic interdependence. Difficulty level: easy. 

• Trade and Globalization - a long, data-rich article from Our World in Data about global trade. Includes sections on the rise of global trade and globalisation, scale and composition of global trade today, trade partnerships, trade and economic efficiency, trade and incomes and what determines international trade. Difficulty level: medium

• What is globalization? A short video from the International Monetary Fund about globalisation. Difficulty level: easy

Blink, J., & Dornton, I. (2020). Economics: Course Companion. Oxford: Oxford University Press.

Bown, C. P. (2020, June). China's net PPE exports plummeted in early 2020 but are recovering. Peterson Institute for International Economics. https://www.piie.com/research/piie-charts/2020/chinas-net-ppe-exports-plummeted-early-2020-are-recovering

Cohen, J., & van der Meulen Rodgers, Y. (2020). Global shortage of personal protective equipment. Preventive Medicine, 141. https://pmc.ncbi.nlm.nih.gov/articles/PMC7314445/

Jakubik, A., & Van Heuvelen, E. (2024). Globalization today. Finance & Development, International Monetary Fund. https://www.imf.org/en/publications/fandd/issues/2024/06/b2b-globalization-today-adam-jakubik-and-elizabeth-van-heuvelen

Kaiser Family Foundation. (2021). Global COVID-19 vaccine access: A snapshot of inequality. https://www.kff.org/covid-19/global-covid-19-vaccine-access-snapshot-of-inequality/

Kognity. (n.d.) IB DP Economics HL FE2024.

Kognity. (n.d.). IBDP Geography HL FE2019.

McDonald, B. (n.d.). International trade: Commerce among nations. Finance & Development, International Monetary Fund. https://www.imf.org/en/publications/fandd/issues/series/back-to-basics/trade

Meadows, D. H. (2015). Thinking in Systems. Chelsea Green Publishing.

Ortiz-Ospina, E., Rohenkohl, B., Samborska, V., Van Teutem, S., Beltekian, D., & Roser, M. (2018). Trade and globalization. Our World in Data. https://ourworldindata.org/trade-and-globalization

Raworth, K. (2017). Doughnut economics: seven ways to think like a 21st century economist. London: Penguin Random House

Reardon, J., Caporale, M. M. A., & Cato, M. S. (2018). Introducing a new economics: Pluralist, sustainable and Progressive. London: Pluto Press. 

Rivoli, P. (2014). The travels of a T-shirt in the global economy: An economist examines the markets, power, and politics of world trade (2nd ed.). Wiley.

van Staveren, I. (2015). Economics after the crisis: An introduction to economics from a pluralist and global perspective. Routledge.

Coming soon!