WHAT IS INTERNATIONAL ECONOMICS ABOUT?
International economics uses the same fundamental methods of analysis as other branches of economics, because the motives and behavior of individuals and firms are the same in international trade as they are in domestic transactions. When a bottle of Spanish wine appears on a London table, the sequence of events that brought it there is not very different from the sequence that brings a California bottle to a table in New York-and the distance traveled is much less! Yet, international economies involve new and different concerns, because international trade and investment occur between independent nations. Spain and the United Kingdom are sovereign states; California and New York are not. Spain's wine shipments to the United Kingdom can be disrupted if the British government sets a quota that limits imports; Spanish wine can become suddenly cheaper to British wine drinkers if the foreign-exchange value of Spain's peseta falls against that of Britain's pound sterling. Neither of these events can happen within the United States, where the Constitution forbids restraints on interstate trade and there is only one currency.
The subject matter of international economics, then, consists of issues raised by the special problems of economic interaction between sovereign states. Seven themes recur throughout the subject: the gains from trade, the pattern of trade, protectionism, the balance of payments, exchange-rate determination, international policy coordination, and the international capital market.