Economic Integration

Economic integration is when countries in the global economy decide to be besties: they take down trade barriers (like quotas and tariffs) and coordinate monetary and fiscal policies.

It’s like they exchanged friendship bracelets...but not for nothing. This economic integration friendship is designed by all involved to increase trade among nations and lower costs for firms and consumers. It’s not all sunshine and rainbows though...high levels of economic integration can mean that, if one nation’s economy goes down, it’ll drag down the others with it.

When times are feeling good, there are higher levels of economic integration. When some economies start tanking, countries may decide to ditch economic integration, meaning trade barriers, which makes things more expensive for those setting up the trade barriers, as well as those behind them.

Like that movie with Brad Pitt and Kevin Spacey, there are seven levels of economic integration:

1) preferential trading area (lowering trade barriers on certain things),

2) free trade area (like NAFTA, a no-trade-barrier zone among member nations),

3) customs union (like a free trade area, except they also put a tariff on their enemy that’s not included in their club),

4) common market (beyond goods, also freely trade labor),

5) economic union (they decide to be kinda nice to their enemy outside the club),

6) monetary union (sharing a currency, like the euro), and

7) complete economic integration (hmm...going a little too far?).