Free Trade vs. Protectionism

More trade tends to lead to more prosperity for a society. So everyone should favor completely free international trade, right? Well not exactly. Some economists promote protectionism, which restricts trade with other countries to protect domestic production from competition. Why would this be advantageous? What are the pros and cons of these two approaches to trade? Let's get a closer look!

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[burntpancake]

Indians on their way to storm the comment section (there was a rupee in the thumbnail)

[materialknight]

There should be no debate of Free Trade vs Protectionism. It's actually really simple:

Free market and protectionism are merely instruments to be used at different stages of industrial development. When your important industries are small, you protect them; that's how the world powers have achieved economic welfare: With hard protectionism of key industries at the beginning or whenever is necessary (if the Chinese become clearly more efficient, for example, in the case of the US).

And when your industry is strong, you peddle the free market as the key to your success to anyone naive or ignorant enough to believe it, so they open their borders for your industry to devour theirs, thereby letting them forever stuck in the 3rd world.

In any case, uncontrolled capitalism tends to reward being first in exploiting the initial lack of regulation (by scamming, underdelivering, and putting the worker and the consumer at risk, etc.), and since they got more opportunities to get more money in unethical ways, they end up with more money they can re-invest to acquire more capital.

The above means that capitalism tends to form one oligopoly per industry, and when an oligopoly arises, it can:

- Uphold ridiculous patents that stifle innovation.

- Lobby for increased domestic regulation so other companies can't reach them.

- Lobby for increased fines that they can cushion but would otherwise destroy startups.

- Bribe authorities and mainstream media to invert reality when they put the environment, their workers or the consumer at risk.

Oligopolies can also agree, explicitly or tacitly, to deliver inferior quality (look at what happened with the long-lasting light bulbs), and can get away with scamming the consumer, subtly or not, because the consumer has little or no other choice.

Remember: The purpose of a company is not to give you better quality for the lowest price, it's to make money; and if they can get away with scamming, underdelivering, exploiting, putting your health at risk, etc. THEY WILL.

Also, as people have said elsewhere in these comments, if you receive subsidies or if the government is your customer, you're not really playing the game of the free market.

[dongiovanni]

One thing that we've seen in protectionist policies, is that protected industries raise prices to match the foreign prices.

I'm looking at you US steel industry 😒

[Thebes_S]

I don't think Brexit was about protectionism of British business, more about exiting the protectionism of the EU (the customs union). The UK still seeks FTAs from countries around the world, and still has one with the EU.

[WTFBigboss]

There's one thing my country does well: During harvest of a certain domestic fruit/vegetable, they raise the tariff of cet imported vegetable/fruit to make it cheaper to buy the domestic ones, which I personally find a good thing to pressure the citizens buy local fruits/vegetables.

[jasonnikolauk]

Free trade helps consumers not necessarily workers if free trade hurts workers they won’t/can’t be consumers. In truth it’s not so much a question of either/or it’s a question of balance.

[wildpony]

I'm not an expert but after analyzing this video and all its contents, I cannot say anything because as I said in the beginning "I'm not an expert".

[AndyDavid]

Professor Dave does a good job of explaining, but I think there are key omissions. One effect of trade is often a race to the bottom as companies compete on price - this generally means a progressive decrease in quality -- and the consumer isn't the winner. Another major flaw is is how ecomonic health (or 'progress') is measured. GDP is a really bad metric and absolutely should not be used. It's one good point is that it's a single number and when it's high, it's 'good' and when it's low, that's 'bad', but it includes things that aren't measures of a healthy society and excludes many things that are - and it is insensitive to whether an economy is sustainable - so is entirely misleading and it's getting us into trouble.

I'm not against wealth creation, and I believe in rewarding hard work, originality, creativity and excellence. My issue is with the use of GDP as a metric for success. I don't have the answer, I'm just staring at the problem.

[Ian_sothejokeworks]

I don't think free trade can work unless every country does it. Like, if a US company is competing with a Chinese company, but the Chinese government bolsters the company based it it's borders, that company has a major advantage in the market. Also, is it 'free trade' if the government is a customer of a company? If the US only buys chips from Intel, then Intel has a HUGE market advantage. Unless the government produces all materials in-house, using proprietary manufacturing, they'll always be handing someone a leg up, to mix my limb-based metaphors.

[clutrike]

Free Trade is the outsourcing of labor to the lowest cost.

The 'cheaper good improves our standard of living', really means 'instead of using slaves here at home, we'll use slaves in another country on the other side of the planet.'

[Homo_universalis]

Great video; very informative! Will you make new videos in mathematics (e.g., calculus)?

[AnglandAlamehnaSwedish]

I took macro then micro economics in university n think this video is excellent fir a quick lil bit to drop some info fir ppl who did not have the time or energy or money to reas a book

[DavidGS]

India has 100% tariffs on imported cars, & still companies like Harley Davidson & Ford had to give up producing in India.

[suferick]

Yes, we Brits are the only nation in the world to impose economic sanctions on itself

[frundtdretscher]

Free traders miss the point that competitive advantages are often made on the expense of harming people (e.g. through lower labour standards) or exploit shared ressources as the climate or other environmental ressources. Thus, it is reasonable to create markets that disadvantage products with higher exploitation quotas and pay higher prices for products as there come less externalised costs with them.

[cyrol]

The problem I have with free trade is one you already mentioned, the example with the shirts. The big problem I see with all of this is the fact that there isn't a set currency of the world. Each country has their own currency with their own worth in comparison to other currencies. Now someone living in a country where 1 of their type of currency is worth lets say 0.001$ earns ~1000 of that currency in a month, which would equal 1$ in the US. In their country, this money would be enough for a low average living standard, yet in the US 1$ isn't enough. Now this worker produces ~250 Shirts a month lets say just for good measure, which means 250 Shirts are worth ~1000 foreign currency in labor plus some 500 foreign currency in material cost. Perhaps I am simplifying to much here, but now calculate the value of one shirt: 1 Shirt is worth 6 foreign currency, meaning 0.006$. Now we want to sell this in the US. Let's say you sell one of these Shirts for 5$ in the US from which you gain 2$ profit, than one shirt already generates 333.33...x the amount its worth, which is a huge profit margin (If that even is a profit margin I am talking from my current understanding of all of this which is not much). No firm in the USA could produce such margins without astronomical prices or worker abuse, so the most efficient and profitable way for a US Shirt maker is to produce in said country where the work is cheap, thus weakening the domestic shirt production. If all US Shirt makers think that way, which they might considering they would make a huge amount of money in the process, the domestic shirt production would cease to exist.
In my opinion, this scenario wouldn't happen in a world with one currency, as outsourcing would be more expensive than domestic production, thus enabling free trade and at the same time having the benefits of protectionism. However there may be an argument to be made here, that a "World Coin" would impact free trade in the way protectionism does at the moment... I just noticed this while writing: Wouldn't a "World Coin" per se lead to some sort of global protectionism?

[little]

I am using this channel to prepare for algebra 1 and watching your old flat earth videos
I love how you explain things well across so many topics you clearly do research

Also i have never been so early to any video ever, not even just your channel. Just ever. I know it’s kinda cringey to be like, “i’m early” but i’m happy about it

(excuse my bad typing idk why but i just can’t bring myself to type well today)

[davidbarrera]

Pros of proteccionism: you can develop your own industry, developing your own country.
Cons of proteccionism: your country gets coup de'etated until their government is not proteccionist anymore

[dimetronome]

You forgot to mention three of the biggest criticisms of free trade: it undermines labour rights, it's undemocratic, and it is destructive to the environment. Those are three of the biggest ctiticisms. As an educator, you have a responsibility to be more balanced so that students are able to make up their own minds instead of being pushed in one direction with bias.

[djhalling]

Brexit was not really a backlash against free trade. For those who voted for it, it seems more to have been about the EU regulations and free movement of people.