Video Transcript: Free Trade vs Protectionism

Hello, welcome back. In this video, we're going to discuss free trade versus  protectionism. You know, free trade is important to make sure that businesses  have an opportunity to diversify. You know the markets they actually operate in,  the markets that they sell products to, right? So that allows companies in the  United States to sell to Europe, China, Japan, Africa, etc. right? So, but now  there is some negatives that come with free trade as well, and we're going to  discuss those in this video. So, international trade, free global trade. In this,  there exists no trade barriers or restrictions such as tariffs, quotas, or  embargoes. Right. So, tariffs, quotas, and embargoes are mechanisms that  governments can use to ensure the security and the longevity and the prosperity of their domestic economy. Right, so there is no trade barriers or restrictions on  trade in ultimate free trade, right? There's no restrictions or barriers. Okay, that's pure free trade. Now, why is free trade beneficial, right? It's this increases  consumer utility. Remember, utility is the measurement of the satisfaction that  they receive from a good or service, right? Choice, an increase in choice, and  they get to enjoy an increase in the surplus of whatever it is that they're trying to  consume. So, if we have a surplus, prices will be cheaper because there are  more of the product, right? So that's why free trade is beneficial to the  consumer, right? It increases the consumer's ability to be satisfied because  there are more options. There obviously choice, and then a greater surplus  decreases prices. Now, there's also increased competition, which goes to the  natural surplus, right? So once the competition is increased, because now on a  free trade scale, it's global, right? So it's international. All companies and firms  and entities can participate in this free trade global market, right? So therefore,  competition is increased, right? So that's why we can buy European cars in the  United States or Japanese cars in the United States, who obviously compete  with our domestic vehicles that are produced right here in this country. Now, it  also calls and it also allows for greater efficiency, right? Because competition  makes other entities or firms drive harder to become more efficient, right? So  they can control their costs, so they can offer lower or competitive prices with  the competition, right? So efficiency is key, especially in pricing, the greater and  more efficient an operation is, the more efficient and spot on in equilibrium the  price will be. Lowers prices for consumers from competition, surplus, greater  ability to acquire goods and services. Now, if your global trade? If it's free global  trade, you're not you're now not just bound to your domestic borders, right? You  have greater ability to acquire goods and resources because now I can branch  out internationally and go into the global market and fish for resources and  goods there. Okay, so what are the detriments of free trade, right? So dumping,  right? So let's say I own a company and we produce a million widgets per se,  right? Let's say a million widgets, and let's say we only sell 750,000 of them,  right? Well, now we have 250,000. Well, that 750,000 we were able to sell  domestically, right? And some internationally, right? But now because we have 

this excess of 250,000 widgets, and there's no more demand domestically really for them because everybody owns a widget now or whatever, right? So then  now we're going to go take it to some obscure market, say South Africa or you  know the Middle East potentially, or or China, right? And we're just going to  dump those products there for cheap. They're going to sit on the market,  whatever. We can take all of this excess excess products that we have that we  didn't Sell and then we'll just dump them somewhere and you know and go with  it like that, right? We just dump it into somebody else's economy and not worry  about it, right? So that's something that waters down the supply of you know  those same competitive products that are in that market. You know, it's going to  add more supply to it, so it'll it'll kind of water that down a little bit. Survival of the fittest, right? There's no regulation in a totally free trade market, right? Survival  of the fittest. So therefore, you know, if all of the of the biggest company, they're  able to dominate and they're able to, you know, be a predator in that industry,  right? They may knock out the smaller guys because they have the larger scale  to operate on, right? So that's why the government wants to come in and  intervene and make sure that the free market does stay competitive and is not  monopolized and dominated by one particular firm or entity, national security  threats, right? Especially with like steel, aluminum, vehicle parts, right? Maybe  for whatever, whatever kind of like military equipment that a nation may use,  right? We don't. Let's say we don't want. Let's say there's some German  manufacturer only only offers some type of sprocket that is used in some type of military vehicle. Well, we want to have the ability to not just be depending on  them. We want to be able to replicate that and bring it home too. So we want to  try to diversify away or mitigate any kind of national third national security threat  that may be you know that may come about through free trade, right? So we  want to make sure that we we have enough of what we need to to fund maybe  the military or what other what other what other kind of like domestic  manufacturer may produce that would be a national security threat if we don't  have enough of it. So our government is going to step in and make sure that  we're able to mitigate those risks, mitigate those threats, and ensure that we can be well prepared in case of a threat and domestic job loss. If we are importing a  ton of foreign goods, you know our domestic workers are going to be hit by that  because of the oversupply and whatever whatever industry they are in. And you  know once they have this greater supply, the domestic manufacturers, obviously because they're not having as much sales revenue, they're going to have to cut  labor force, and therefore domestic workers get put out of work. So the the  benefits of protectionism. Now remember, protectionism tariffs, quotes, or  embargoes. Right now, what are the benefits of those protectionism Factors,  right? So, infant industry argument, right? We want to make sure that if this  industry is in its infancy, they have protection from potential threats such as  hostile takeover from another company, merger and acquisition threat, right? 

They want to make sure that they are protected. A small business and an  industry that is ramped up, we have got to make sure that they are able to  compete there. Obviously, no dumping. Right, we don't want excess products  just being dumped into a market. It's going to drive down prices. Obviously, we  can enhance our national security through protectionism, and we can protect  domestic jobs, and this allows our economy to be a domestic economy to be  diversified. So free trade versus protectionism plays out on the national stage in  the United States. Okay, many economists favor free trade over protectionism.  Recently, we have seen in 2018 that President Trump has signed into law, you  know, kind of a tariff on steel and aluminum, foreign steel and aluminum, right?  So, which may have prices increase in steel and aluminum domestically, but  because we are being flooded in this country with cheap Chinese steel and  aluminum, President Trump signed the law of the tariff to protect our domestic or the United States domestic steel and aluminum manufacturers, so they have an  opportunity to compete with the Chinese firms, and that the Chinese firms aren't  making all the sales to the U.S. consumers because we want to make sure that  the steel and aluminum industries in the United States, or President Trump  wants to make sure that the steel and aluminum industries in the United States  are able to compete. And thrive and continue to grow and prosper. However,  there are individual cases where protectionism is warranted and therefore  cannot be disregarded altogether. So, you know, a lot of times people free trade  proponents are you know really anti-protectionism, right? They want a free, open global market, which is fine, right? But there needs to be a balance in  protectionism and free trade, so domestic economies aren't put in shambles.