Arguments Against International trade
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0:01 - 0:03♪ [music] ♪
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0:09 - 0:13- [Alex] In our previous videos,
we explained the benefits of trade. -
0:13 - 0:16Today we're going to evaluate
some of the arguments -
0:16 - 0:19that one often hears
about limiting international trade. -
0:25 - 0:28International trade is
a controversial subject. -
0:28 - 0:30There's a lot of arguments
surrounding it. -
0:30 - 0:32We're not going to go through all
of them by any means. -
0:32 - 0:33But here are some
of the most common: -
0:33 - 0:38That trade reduces the number
of jobs in the United States. -
0:38 - 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 - 0:48We need to keep certain
key industries at home -
0:48 - 0:53because of beneficial spillovers
onto other sectors of the economy. -
0:53 - 0:56And we can increase
U.S. well-being, the argument goes, -
0:56 - 0:59with strategic trade protectionism.
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0:59 - 1:00So we're going to evaluate, say,
-
1:00 - 1:03a few things about each one
of these arguments. -
1:03 - 1:05Let's consider trade and jobs.
-
1:05 - 1:08What happens when
a tariff is lowered? -
1:08 - 1:11Well, imports will increase,
and there will be fewer jobs -
1:11 - 1:14in the import competing industry.
-
1:14 - 1:17For example, if we have a tariff
on shoes and we reduce the tariff, -
1:17 - 1:21we'll have imports of more shoes
from China and from Vietnam, -
1:21 - 1:23and that will mean fewer jobs
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1:23 - 1:26in the American
shoe-producing industry. -
1:26 - 1:31That's what people see when
they think about reducing a tariff. -
1:31 - 1:34They're worried about losing those
jobs in the American industry. -
1:34 - 1:39However, we want to see
the issue in a deeper way, -
1:39 - 1:45in a more fundamental way,
and a key question to ask is, -
1:45 - 1:50"Why do people send us goods?
Why would workers in China -
1:50 - 1:54and Vietnam work long hours
to send us shoes?" -
1:54 - 1:57It's certainly not from
the kindness of their heart. -
1:57 - 2:03Ultimately, they want goods
in return, goods or services. -
2:04 - 2:08They are working -- they are
producing in order to consume. -
2:08 - 2:12They are sending us goods
because they want goods in return. -
2:12 - 2:15They are not doing it out
of the goodness of their hearts, -
2:15 - 2:19but out of self-interest
as Adam Smith said. -
2:20 - 2:25And that leads to a fundamental
insight about international trade. -
2:26 - 2:31Namely, we pay
for our imports with exports. -
2:31 - 2:38When we import more,
we will ultimately export more -
2:38 - 2:43because we pay for our imports
through our exports. -
2:44 - 2:50What this means is that trade
doesn't destroy jobs overall. -
2:50 - 2:55Trade moves jobs
from import-competing industries -
2:55 - 3:01to export industries, and overall,
wages increase on average -
3:01 - 3:03because of comparative advantage.
-
3:03 - 3:07Because we pay
for our imports with exports, -
3:07 - 3:10when we import more,
we will export more. -
3:11 - 3:16Jobs will reduce in the import
competing industries and increase -
3:16 - 3:17in the export industries.
-
3:18 - 3:21Now, this process is
not always easy. -
3:21 - 3:25Problems can occur when we lose
jobs in low-skill import-competing -
3:25 - 3:29sectors and gain jobs
in high-skill export sectors. -
3:29 - 3:33Overall, when the United States
imports goods, we typically -
3:33 - 3:37import goods produced by low-skill,
because America on average -
3:37 - 3:40is a high-skill economy,
has high-skilled workers -
3:40 - 3:44on a world level, but we do have
some low-skill workers, -
3:44 - 3:48and imports tend to compete
with the products -
3:48 - 3:50produced by low-skilled workers.
-
3:50 - 3:54Everything will be fine
if our education system is -
3:54 - 3:57working well, and if those
low-skill workers can increase -
3:57 - 3:59their skills and move
to high-tech -- -
3:59 - 4:03or high-skill, not necessarily
high-tech -- high-skill sectors. -
4:04 - 4:09Of course, that's a big "if,"
and the transition can be difficult. -
4:09 - 4:12We have to put this
in context, however. -
4:12 - 4:17In a growing economy, jobs are
appearing and disappearing -
4:17 - 4:20all the time, not just
or even fundamentally because -
4:20 - 4:22of international trade,
but because of changes -
4:22 - 4:24in preferences
and changes in technology. -
4:25 - 4:26Let's take a look at that.
-
4:27 - 4:29It's important when thinking
-
4:29 - 4:31about trade and jobs
and jobs in general -
4:31 - 4:37that the American economy succeeds
precisely because jobs are being -
4:37 - 4:40created and destroyed
all the time. -
4:41 - 4:46Job destruction is often a sign
of progress and growth. -
4:46 - 4:48Think about Thomas Edison.
-
4:48 - 4:52He destroyed the whaling industry
with his invention of the light bulb. -
4:53 - 4:56CDs -- some of you may not even
remember compact discs -- -
4:56 - 5:00they destroyed jobs
in the record industry. -
5:00 - 5:04MP3s destroyed jobs
in the CD industry. -
5:04 - 5:07This is the way progress
often occurs. -
5:07 - 5:11Employment and the standard
of living overall keep rising -
5:11 - 5:16over time, and the reason they're
rising is precisely that old jobs -
5:16 - 5:19are being destroyed,
new jobs are being created. -
5:19 - 5:26Overall, in the churn,
there's a trend towards richer jobs, -
5:26 - 5:28higher-paying jobs, higher wages.
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5:28 - 5:33Overall technology, trade,
these benefit the U.S. economy. -
5:35 - 5:37Child labor is something
which no one wants, -
5:37 - 5:40but it's important to understand
that child labor is something -
5:40 - 5:42which happens when people are poor.
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5:43 - 5:46Child labor was common
in 19th century Great Britain -
5:46 - 5:47and the United States.
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5:47 - 5:50Child labor declined
in the developed world -
5:50 - 5:52as people got richer.
-
5:52 - 5:57Forces that reduced child labor
in the developed world are also -
5:57 - 5:59at work in the developing countries.
-
5:59 - 6:02As countries become richer,
child labor declines. -
6:02 - 6:07What this graph shows is that
as real GDP per capita increases, -
6:07 - 6:12the percent of children ages 10
to 14 in the labor force decreases. -
6:12 - 6:15So increases in real GDP reduce
-
6:15 - 6:18the percent of children
in the labor force. -
6:18 - 6:23The circles, by the way, are
proportional to the absolute number -
6:23 - 6:26of children in the labor force,
so in China, for example, -
6:26 - 6:29there are about 12 percent
of kids in the labor force, -
6:29 - 6:32but because there are so many
Chinese children, that's -
6:32 - 6:36a large number of children
in absolute numbers. -
6:36 - 6:38Again the key here is really
-
6:38 - 6:41that economic growth
reduces child labor. -
6:42 - 6:47So if you want to reduce child labor
you want a country to become rich. -
6:47 - 6:52The question is, "Can one
accelerate this process by banning -
6:52 - 6:59child labor or by refusing to trade
with countries that use child labor?" -
6:59 - 7:03That's really refusing to trade
with the poorest of countries. -
7:03 - 7:05Do we really want to do that?
-
7:05 - 7:07Do we really want
to say to poor countries, -
7:07 - 7:09"We're not going to trade with you."
-
7:09 - 7:13There are many opportunities
here for unintended consequences -
7:13 - 7:18of laws which may have been trying
to do a good thing but backfire. -
7:18 - 7:22So, for example, when India
banned child labor, -
7:22 - 7:27one of the effects of that was
to reduce the wages of children -
7:27 - 7:29because now you have
to hire them under the table. -
7:29 - 7:33Because their wages were lower,
the families were poorer, -
7:33 - 7:35and because the families
were poorer, -
7:35 - 7:38they had to rely
even more on child labor. -
7:38 - 7:44So it is very easy to create
a policy which backfires. -
7:45 - 7:52It is not, in my view, a good idea
to use international trade -
7:52 - 7:57as a weapon or as a tool
against child labor. -
7:57 - 8:01A much better idea would be
to help poor countries, -
8:01 - 8:05would be to offer free schooling
in poor countries, -
8:05 - 8:09to offer lunches for schools
in poor countries. -
8:09 - 8:13This increases the incentive
to send the children to school -
8:13 - 8:14because then they are fed.
-
8:15 - 8:18So there are lots of things we can
do to reduce child labor -
8:18 - 8:21in poorer countries,
but to say to those countries, -
8:21 - 8:25"We're not going to trade with you
because you're poor -
8:25 - 8:28and you're using child labor
just exactly the same way -
8:28 - 8:30we did in the 19th century."
-
8:31 - 8:35That is really not in my view
a productive policy. -
8:36 - 8:39Trade and national security.
Yeah, some industries probably -
8:39 - 8:42should be protected
to protect national security. -
8:42 - 8:45The problem is this argument
is subject to great abuse. -
8:45 - 8:48Almost every industry can
and does make the claim -
8:48 - 8:51that they're essential
for national security. -
8:51 - 8:53So let's give some examples.
Vaccine production? -
8:53 - 8:58Yes, probably a good idea for us
to have some domestic capability. -
8:58 - 9:02We don't always want to buy our
vaccines from abroad, just in case. -
9:02 - 9:05Angora goat fleece? Am I serious?
-
9:05 - 9:10Yes. Believe it or not,
we have protected Angora goats -
9:10 - 9:13with the argument
that their fleece is necessary -
9:13 - 9:16to produce military uniforms.
-
9:16 - 9:19Yep, some people think goats
are vital to national security. -
9:19 - 9:21I'm not kidding.
-
9:22 - 9:26The key industries argument is very
popular among the high-tech crowd. -
9:26 - 9:30The argument is, is that there are
some industries, which for a variety -
9:30 - 9:34of reasons, are especially important
for a nation to have a foothold in. -
9:34 - 9:37"Biology, microbiology is going
to be the future, -
9:37 - 9:40therefore we need
to have this type of industry." -
9:40 - 9:42Or, "Computers are the future,
-
9:42 - 9:44therefore we need to have
this type of industry." -
9:44 - 9:46The argument is that
these industries create spillovers -
9:46 - 9:48for other industries.
-
9:48 - 9:53They create learning, they create
research, they create workers, -
9:53 - 9:57high-tech workers, which spread out
to other areas of the economy -
9:57 - 10:03and benefit the economy in ways
which go beyond the GDP -
10:03 - 10:05produced by those
particular industries. -
10:05 - 10:07Ross Perot famously made
this argument when he said, -
10:07 - 10:11"Producing computer chips is
better than potato chips." -
10:11 - 10:13In some ways this may be true,
-
10:13 - 10:16but it's overall not
a compelling argument. -
10:16 - 10:19For example, today
most computer chips are -
10:19 - 10:20cheap, mass-produced products.
-
10:20 - 10:23They're not something we really
want to be producing at all. -
10:23 - 10:25They're not even produced
with a lot of labor. -
10:25 - 10:29They're mostly produced
in big factories which don't -
10:29 - 10:31actually make lot of money.
-
10:31 - 10:34Much better to design the product
the way Apple does, -
10:34 - 10:38making lots of profit,
than to buy the chips which Apple -
10:38 - 10:42uses in its iPhones, which don't
make a lot of money at all. -
10:42 - 10:47In 1990, Walmart contributed
more to the boom in productivity -
10:47 - 10:48than Silicon Valley.
-
10:48 - 10:52So it's always difficult
to say exactly which are -
10:52 - 10:55the most important industries.
-
10:55 - 10:57You wouldn't think
that Walmart retail is -
10:57 - 11:01a hugely important industry,
and yet, Walmart is -
11:01 - 11:05the world's largest firm,
and it has done a huge amount -
11:05 - 11:08to make the American economy
more productive. -
11:09 - 11:11So no one really knows
which industries are the ones -
11:11 - 11:14with the really important
spillovers, and when we add -
11:14 - 11:19in political economy, the tendency
for politics to often choose -
11:19 - 11:21based upon the wrong reasons --
-
11:21 - 11:23this argument is really
not very compelling. -
11:24 - 11:26Here's an argument
which again works in theory, -
11:26 - 11:28but is less likely
to work in practice. -
11:28 - 11:31It's possible for a country
to use tariffs and quotas -
11:31 - 11:35to get a larger share
of the gains from trade. -
11:35 - 11:40The argument here is that
if you can limit or tax exports, -
11:40 - 11:44not tax imports, but tax exports,
-
11:44 - 11:48then you can let domestic firms
act as a cartel, -
11:48 - 11:52so it's a way of helping
domestic firms to be more -
11:52 - 11:54like a monopoly,
to act like a cartel. -
11:55 - 11:58So the government
plus the domestic firms put -- -
11:58 - 12:03creates a tax, or limits exports,
in order to raise the price -
12:03 - 12:07of those exports on world markets
and in order to grab up -
12:07 - 12:09more of the gains from trade.
-
12:09 - 12:12It can work, especially
if there are few substitutes -
12:12 - 12:14for U.S.-produced goods.
-
12:14 - 12:17On the other hand, if there are
substitutes for U.S.-produced goods, -
12:17 - 12:20or if we push the price
of our goods up too high, -
12:20 - 12:23and that creates the substitutes,
we may in the long run -
12:23 - 12:25really reduce our market.
-
12:25 - 12:31Moreover, these arguments
for strategic trade protectionism -
12:31 - 12:35are not such a great idea
if other countries can retaliate. -
12:35 - 12:40If every country tries to do this,
then world trade as a whole will -
12:40 - 12:43shrink and no country
will be better off. -
12:43 - 12:47So in trying to grab up
a larger slice of the pie, -
12:47 - 12:50we have to always be worried
about making the pie smaller. -
12:51 - 12:53Again, the argument works in theory.
-
12:53 - 12:58A very clever government might
be able to do it, but in practice, -
12:58 - 13:00this is really not a very good
reason for limiting trade. -
13:01 - 13:05So to sum up, restrictions
on trade waste resources -
13:05 - 13:08by transferring production
from low-cost foreign producers -
13:08 - 13:11to high-cost domestic producers.
-
13:11 - 13:14Restrictions on trade
also prevent domestic consumers -
13:14 - 13:17from exploiting all
of the gains from trade. -
13:17 - 13:20There are some good arguments
for restricting trade. -
13:20 - 13:22Some arguments are
valid, but they're usually -
13:22 - 13:24of limited applicability.
-
13:24 - 13:30Overall, I think free trade is
a robust policy in the sense -
13:30 - 13:35of it's a policy which works
well in most circumstances, -
13:35 - 13:37and protectionism will work well
-
13:37 - 13:40only in a limited number
of circumstances. -
13:40 - 13:42Thanks!
-
13:43 - 13:46- [Narrator] If you want to test
yourself, click "Practice Questions." -
13:46 - 13:50Or, if you're ready move on,
just click "Next Video." -
13:50 - 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
Marilia_PM 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 | ||
Kirstin Cosper edited English subtitles for Arguments Against International trade | ||
Kirstin Cosper edited English subtitles for Arguments Against International trade |