In this subtopic, you'll look at why countries trade, and why they sometimes restrict trade using tariffs, quotas, subsidies, and other barriers. You'll examine how exchange rates are set, why they move, and what happens to an economy when they shift sharply. You'll look at why countries link their economies through trade agreements, common markets, and shared currencies, and what sovereignty they give up in return. You'll examine what a country's balance of payments shows, and what a persistent surplus or deficit can reveal about an economy's strengths and vulnerabilities. And you'll look at who writes the rules of global exchange: states and trading blocs, international organisations, multinational corporations, and civil society groups. Power shapes whose interests those rules serve.
Tariffs, exchange rates, and trade agreements all redistribute costs and benefits, between countries and between different groups of people within the same country. Understanding how these rules are made, and who holds power over them, will help you evaluate the global exchange system and consider whether it could be organised differently.
At the end of Subtopic 7.2 What is global exchange? (Basics II) you should be able to:
explain why countries trade and restrict trade with one another
describe different forms of trade protectionism
explain what exchange rates are and identify the factors that cause them to change
analyse who gains and who loses when exchange rates move
explain why countries choose to pool sovereignty through various forms of economic integration and what trade-offs may be involved
evaluate economic integration from a regenerative economics perspective
describe what the balance of payments measures, distinguishing between the current account and the financial and capital accounts, using examples of transactions
analyse what a persistent pattern in the balance of payments reveals about the conditions in an economy, including its causes and vulnerabilities
explain who shapes the rules of global exchange and how various sources of power influence which rules are written and whose interests they reflect