Arguments Against International trade
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0:02 - 0:05♪ [music] ♪
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0:09 - 0:15- [Alex] In our previous videos, we
explained the benefits of trade. Today we're -
0:15 - 0:19going to evaluate some of the arguments
that one often hears about limiting -
0:19 - 0:21international trade.
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0:25 - 0:27International trade is a controversial
-
0:27 - 0:30subject. There are a lot of arguments
surrounding it. We're not going to go -
0:30 - 0:34through all of them by any means. But here
are some of the most common: -
0:34 - 0:37That trade reduces the number of jobs in
the United States. -
0:37 - 0:41That it's wrong to trade with countries
that use child labor. -
0:41 - 0:46That we need to keep certain jobs at home
for national security. -
0:46 - 0:51We need to keep certain key industries at
home because of beneficial spillovers onto -
0:51 - 0:56other sectors of the economy.
And we can increase US well-being, the -
0:56 - 0:59argument goes, with strategic trade
protectionism. -
0:59 - 1:04So we're going to evaluate, say a few
things about each one of these arguments. -
1:04 - 1:08Let's consider trade and jobs. What
happens when a tariff is lowered? Well -
1:08 - 1:13imports will increase, and there will be
fewer jobs in the import competing -
1:13 - 1:18industry. For example, if we have a tariff
on shoes and we reduce the tariff, we'll -
1:18 - 1:22have imports of more shoes from China and
from Vietnam, and that will mean fewer -
1:22 - 1:27jobs in the American shoe-producing
industry. -
1:27 - 1:31That's what people see when they think
about reducing a tariff. They're worried -
1:31 - 1:37about losing those jobs in the American
industry. However, we want to see the -
1:37 - 1:45issue in a deeper way, in a more
fundamental way. And a key question to ask -
1:45 - 1:52is, "Why do people send us goods? Why
would workers in China, in Vietnam, work -
1:52 - 1:58long hours to send us shoes?" It's
certainly not from the kindness of their -
1:58 - 2:04heart. Ultimately, they want goods in
return, goods or services. -
2:04 - 2:09They are working, they are producing in
order to consume. They are sending us -
2:09 - 2:15goods because they want goods in return.
They are not doing it out of the goodness -
2:15 - 2:21of their heart, but out of self-interest
as Adam Smith said. And that leads to a -
2:21 - 2:30fundamental insight about international
trade. Namely, we pay for our imports with -
2:30 - 2:40exports. When we import more, we will
ultimately export more because we pay for -
2:40 - 2:44our imports through our exports.
-
2:44 - 2:53What this means is that trade doesn't
destroy jobs overall. Trade moves jobs -
2:53 - 3:00from import-competing industries to export
industries. And overall, wages increase on -
3:01 - 3:07average because of comparative advantage.
Because we pay for our imports with -
3:07 - 3:13exports, when we import more, we will
export more. Jobs will reduce in the -
3:13 - 3:18import-competing industries and increase
in the export industries. -
3:18 - 3:24Now, this process is not always easy.
Problems can occur when we lose jobs in -
3:24 - 3:29low-skill import-competing sectors and
gain jobs in high-skill export sectors. -
3:29 - 3:35Overall, when the United States imports
goods, we typically import goods produced -
3:35 - 3:40by low-skill, because America on average
is a high-skill economy, has high-skilled -
3:40 - 3:46workers on a world level. But we do have
some low-skill workers, and imports tend -
3:46 - 3:50to compete with the products produced by
low-skilled workers. -
3:51 - 3:56Everything will be fine if our education
system is working well, and if those -
3:56 - 3:59low-skill workers can increase their
skills and move to high-tech, or -
3:59 - 4:04high-skill, not necessarily high-tech,
high-skill sectors. -
4:04 - 4:10Of course, that's a big "if" and the
transition can be difficult. We have to -
4:11 - 4:16put this in context, however. In a growing
economy, jobs are appearing and -
4:16 - 4:20disappearing all the time. Not just or
even fundamentally because of -
4:20 - 4:24international trade, but because of
changes in preferences and changes in -
4:24 - 4:28technology.
Let's take a look at that. It's important -
4:28 - 4:34when thinking about trade and jobs and
jobs in general that the American economy -
4:34 - 4:41succeeds precisely because jobs are being
created and destroyed all the time. Job -
4:42 - 4:48destruction is often a sign of progress
and growth. Think about Thomas Edison. He -
4:48 - 4:54destroyed the whaling industry with his
invention of the light bulb. CDs, some of -
4:54 - 5:00you may not even remember Compact Discs,
they destroyed jobs in the record -
5:01 - 5:06industry. MP3s destroyed jobs in the CD
industry. This is the way progress often -
5:07 - 5:12occurs. Employment and the standard living
overall keep rising over time, and the -
5:12 - 5:18reason they're rising is precisely that
old jobs are being destroyed, new jobs are -
5:18 - 5:26being created. Overall, in the churn
there's a trend towards richer jobs, -
5:26 - 5:32higher-paying jobs, higher wages. Overall
technology, trade, these benefit the US -
5:33 - 5:36economy.
Child labor is something which no one -
5:36 - 5:40wants, but it's important to understand
that child labor is something which -
5:40 - 5:46happens when people are poor. Child labor
was common in 19th century Great Britain -
5:46 - 5:51and the United States. Child labor
declined in the developed world as people -
5:51 - 5:57got richer. Forces that reduced child
labor in the developed world are also at -
5:57 - 6:01work in the developing countries. As
countries become richer, child labor -
6:01 - 6:03declines.
-
6:03 - 6:08What this graph shows is that as real GDP
per capita increases, the percent of -
6:09 - 6:16children ages 10 to 14 in the labor force
decreases. So increases in real GDP reduce -
6:16 - 6:20the percent of children in the labor
force. The circles, by the way, are -
6:20 - 6:26proportional to the absolute number of
children in the labor force, so in China -
6:26 - 6:30for example, there are about 12 percent of
kids in the labor force, but because there -
6:31 - 6:35are so many Chinese children, that's a
large number of children in absolute -
6:35 - 6:39numbers.
Again the key here is really that economic -
6:39 - 6:45growth reduces child labor. So if you want
to reduce child labor, you want a country -
6:45 - 6:53to become rich. The question is, "Can one
accelerate this process by banning child -
6:53 - 7:00labor or by refusing to trade with
countries that use child labor?" That's -
7:00 - 7:05really refusing to trade with the poorest
of countries. Do we really want to do -
7:05 - 7:08that? Do we really want to say to poor
countries, "We're not going to trade with -
7:09 - 7:11you."
There are many opportunities here for -
7:12 - 7:17unintended consequences of laws which may
have been, tried to do a good thing, but -
7:17 - 7:24backfire. So for example, when India
banned child labor, one of the effects of -
7:24 - 7:29that was to reduce the wages of children
because now you have to hire them under -
7:29 - 7:34the table. Because their wages were lower,
the families were poorer, and because the -
7:34 - 7:41families were poorer, they had to rely
even more on child labor. So it is very -
7:41 - 7:51easy to create a policy which backfires.
It is not, in my view, a good idea to use -
7:51 - 7:57international trade as a weapon or as a
tool against child labor. -
7:57 - 8:03A much better idea would be to help poor
countries, would be to offer free -
8:03 - 8:09schooling in poor countries, to offer
lunches for schools in poor countries. -
8:10 - 8:14This increases the incentive to send the
children to school because then they are -
8:14 - 8:20fed. So there are lots of things we can do
to reduce child labor in poorer countries, -
8:20 - 8:24but to say to those countries, "We're not
going to trade with you because you're -
8:25 - 8:30poor and you're using child labor," just
exactly the same way we did in the 19th -
8:30 - 8:36century, that is really not in my view a
productive policy. -
8:36 - 8:40Trade and national security. Yeah, some
industries probably should be protected to -
8:41 - 8:45protect national security. The problem is
this argument is subject to great abuse. -
8:46 - 8:49Almost every industry can and does make
the claim that they're essential for -
8:49 - 8:55national security. So let's give some
examples. Vaccine production? Yes, -
8:55 - 8:59probably a good idea for us to have some
domestic capability. We don't always want -
8:59 - 9:05to buy our vaccines from abroad, just in
case. Angora goat fleece? Am I serious? -
9:06 - 9:12Yes. Believe it or not, we have protected
Angora goats with the argument that their -
9:12 - 9:18fleece is necessary to produce military
uniforms. Yep, some people think goats are -
9:18 - 9:22vital to national security. I'm not
kidding. -
9:22 - 9:26The key industries argument is very
popular among the high-tech crowd. The -
9:26 - 9:31argument is, is that there are some
industries which for a variety of reasons -
9:31 - 9:36are especially important for a nation to
have a foothold in. "Biology, microbiology -
9:36 - 9:40is going to be the future, therefore we
need to have this type of industry." Or, -
9:41 - 9:44'Computers are the future, therefore we
need to have this type of industry." The -
9:44 - 9:49argument is that these industries create
spillovers for other industries. They -
9:49 - 9:54create learning, they create research,
they create workers, high-tech workers, -
9:55 - 10:00which spread out to other areas of the
economy and benefit the economy in ways -
10:00 - 10:05which go beyond the GDP produced by those
particular industries. -
10:05 - 10:10Ross Perot famously made this argument
when he said, "Producing computer chips is -
10:10 - 10:14better than potato chips."
In some ways this may be true, but it's -
10:15 - 10:19overall not a compelling argument. For
example, today most computer chips are -
10:19 - 10:23cheap, mass-produced products. They're not
something we really want to be producing -
10:23 - 10:27at all. They're not even produced with a
lot of labor. They're mostly produced in -
10:28 - 10:32big factories which don't actually make a
lot of money. Much better to design the -
10:32 - 10:38product the way Apple does making lots of
profit, than to buy the chips which Apple -
10:38 - 10:43uses in its iPhones which don't make a lot
of money at all. -
10:43 - 10:48In 1990, Walmart contributed more to the
boom in productivity than Silicon Valley. -
10:49 - 10:55So it's always difficult to say exactly
which are the most important industries. -
10:55 - 11:00You wouldn't think that Walmart retail is
a hugely important industry, and yet, -
11:01 - 11:06Walmart is the world's largest firm and it
has done a huge amount to make the -
11:06 - 11:11American economy more productive. So no
one really knows which industries are the -
11:11 - 11:16ones with the really important spillovers,
and when we add in political economy, the -
11:16 - 11:21tendency for politics to often choose
based upon the wrong reasons, this -
11:21 - 11:26argument is really not very compelling.
Here's an argument which again works in -
11:26 - 11:30theory but is less likely to work in
practice. It's possible for a country to -
11:30 - 11:36use tariffs and quotas to get a larger
share of the gains from trade. The -
11:36 - 11:43argument here is that if you can limit or
tax exports, not tax imports, but tax -
11:43 - 11:50exports, then you can let domestic firms
act as a cartel, so it's a way of helping -
11:51 - 11:56domestic firms to be more like a monopoly,
to act like a cartel. So the government -
11:56 - 12:02plus the domestic firms put, creates a
tax, or limits exports in order to raise -
12:03 - 12:08the price of those exports on world
markets and in order to grab up more of -
12:08 - 12:09the gains from trade.
-
12:10 - 12:14It can work, especially if there are few
substitutes for US-produced goods. On the -
12:14 - 12:18other hand, if there are substitutes for
US-produced goods or if we push the price -
12:18 - 12:23of our goods up too high, and that creates
the substitutes, we may in the long run -
12:24 - 12:29really reduce our market. Moreover, these
arguments for strategic trade -
12:30 - 12:36protectionism are not such a great idea if
other countries can retaliate. If every -
12:36 - 12:42country tries to do this, then world trade
as a whole will shrink and no country will -
12:42 - 12:48be better off. So in trying to grab up a
larger slice of the pie, we have to always -
12:48 - 12:53be worried about making the pie smaller.
Again, the argument works in theory. A -
12:53 - 12:58very clever government might be able to do
it, but in practice, this is really not a -
12:59 - 13:04very good reason for limiting trade.
So to sum up, restrictions on trade waste -
13:04 - 13:10resources by transferring production from
low-cost foreign producers to high-cost -
13:10 - 13:15domestic producers. Restrictions on trade
also prevent domestic consumers from -
13:15 - 13:19exploiting all of the gains from trade.
There are some good arguments for -
13:19 - 13:23restricting trade. Some arguments are
valid, but they're usually of limited -
13:23 - 13:31applicability. Overall, I think free trade
is a robust policy in the sense that it's a -
13:31 - 13:37policy which works well in most
circumstances and protectionism will work -
13:37 - 13:41well only in a limited number of
circumstances. -
13:41 - 13:42Thanks!
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13:51 - 13:53♪ [music] ♪
- Title:
- Arguments Against International trade
- Description:
-
In this video, we discuss some of the most common arguments against international trade. Does trade harm workers by reducing the number of jobs in the U.S.? Is it wrong to trade with countries that use child labor? Is it important to keep a certain number of jobs at home for national security reasons? Can strategic protectionism increase well-being in the U.S.? Join us as we discuss these common concerns. - See more at: http://mruniversity.com/courses/principles-economics-microeconomics/arguments-against-trade?
Microeconomics Course: http://mruniversity.com/courses/principles-economics-microeconomics
Ask a question about the video: http://mruniversity.com/courses/principles-economics-microeconomics/arguments-against-trade#QandA
Next video: http://mruniversity.com/courses/principles-economics-microeconomics/introduction-externalities
- Video Language:
- English
- Team:
- Marginal Revolution University
- Project:
- Micro
- Duration:
- 13:56
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Kirstin Cosper edited English subtitles for Arguments Against International trade | ||
Kirstin Cosper edited English subtitles for Arguments Against International trade | ||
Kirstin Cosper edited English subtitles for Arguments Against International trade | ||
Kirstin Cosper edited English subtitles for Arguments Against International trade | ||
Kirstin Cosper edited English subtitles for Arguments Against International trade | ||
Kirstin Cosper edited English subtitles for Arguments Against International trade |
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