Spillover Effect

  

Categories: Stocks, Econ

The spillover effect is the domino effect you never expected. You didn’t know that burrito would give you food poisoning, causing you to miss that job interview. Or that meeting your dog’s dog-friend’s owner would lead to you getting your next job.

The spillover effect is like that, but with big-picture economics as opposed to personal economics.

It’s when an event happens that results in an unexpected economic consequence on a large scale…”spilling over” into other areas. Negative externalities are oftentimes spillover effects. For instance, a firm that's polluting...leading to higher healthcare costs and cancer rates nearby.

On a larger scale, things that happen with the U.S.’s economy oftentimes have a spillover effect to other areas of the world. Which is why everyone knows about America, but Americans don’t know about everyone else. Except China. We know about China.

Since China is now the second largest economy after America, it too is having spillover effects onto other nations’ economies. China’s economy was growing like crazy, but has recently slowed. This means they’re buying less from other countries, and that effect is rippling through all of those economies.

For instance, take the U.S. and China trade war. While this obviously affects the U.S. and China (since tariffs suck for both sides, putting a damper on GDP), it also affects other nations that trade with the U.S. and China. Since the world is so globally connected nowadays, domino effects are increasingly common. When the dominos continue to fall, affecting outside parties, you have a spillover effect.

Countries like North Korea are pretty immune to spillover effects, since they’re pretty independent of the international economy. Welp, that’s one thing going for their economy.

Related or Semi-related Video

Finance: What is Free Trade?12 Views

00:00

Finance a la shmoop what is free-trade? alright people think tax-less trade

00:09

frictionless trade trade with gallons of wd-40 sloshing around it no duties no [Person spraying WD-40 on trade]

00:16

fees no hassles from the man well we want to sell iPhones into China where

00:22

there ain't no free trade sorry China and just keeping it real

00:26

China treats its own companies as if it's you know them against the world and [China fighting the world in a boxing ring]

00:31

China backs its own companies aggressively like against everyone else

00:35

including us like you can't get Gmail and a bunch of other American websites

00:40

in China without a special VPN or virtual private network to kind of go

00:44

around their system and yeah that's government free trade in China there

00:49

isn't so when American companies want to sell stuff into China a big fat tax in

00:55

one form or another is levied on top of them like a pair of shoes that should

00:59

sell for 80 bucks gets a forty dollar tax laid on top of it so that the

01:04

distributors have to sell it for a hundred twenty bucks to keep the same

01:07

margin they have everywhere else do some people still pay up for those hundred [People walking]

01:11

twenty dollar shoes you know their quality American goods well you bet but

01:17

in a bake-off of arguably the same well almost identical product where one costs [Two pairs of shoes with different price tags]

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50% more well it ends up being tough to compete in that environment right so

01:27

that's not free trade so what is free trade? well basically it's a world where

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there are no taxes no levies no special fees no needs for local business

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incorporation no hidden legal fees no corruption that just kind of you know

01:42

happens along the way with product falling off the truck and ending up in [Truck drives by and box falls off]

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someone's hands and then getting sold on eBay yeah that happens all the time so

01:50

free trade actually deals with the regulation of tariffs ie taxes and

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duties on imports and exports. Well, in real life there's no perfectly free

02:00

trade, trade is essentially governed by agreements among nations and the most

02:05

talked about free trade agreement is NAFTA or the north american free trade

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agreement which basically stated that the countries comprising

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North America ie Canada Mexico and the U.S would trade freely among themselves

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with little to no pain in the butt friction tariffs were eliminated [Person sprays WD-40 on north american tariffs]

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progressively with the goal of removing all friction and trading among these

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"partners" financial commercial utopia that's what we saw it

02:31

and yeah it does not exist in the U.S either by the way we are free ish the

02:36

same way marriage is free-ish generally the arguments supporting free trade

02:41

revolve around the following first the markets prevail if people want a good [List of arguments for free trade appears]

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they can buy at a fair price second if they buy in this free trade umbrella

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both nations benefit in theory by having better economic growth and third free

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trade is relatively easy to regulate because they're simply not much

02:59

government needs to do government can just sit and watch so then you remove

03:03

the cost of supporting a whole bunch of bureaucrats who add almost no value to

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the economy and often more times than not to add a whole bunch of corruption [Man puts dollar bill over his eyes]

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to the process and then fourth yeah don't forget four, when active trade

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happens there's essentially a learning that goes on in the form of technology

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transfer product innovation and optimization and other forms of

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production expertise that you know get shared among countries and that's good

03:29

right? so those are the good the good things

03:32

about free trade what about the bad? well first the free trade makes the theft of [List of arguments against free trade appear]

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intellectual property really easy note that the movie Deadpool made

03:42

literally no money from China after making like half a billion dollars in

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the U.S yet it was the number one download in China yeah how does that

03:51

work well second jobs get out sourced when trade is truly free of course

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manufacturers will lean toward companies with cheaper labor and few human rights

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to assemble that you know Ford f-150 with the extra shiny bumper and what [Ford F-150 appears]

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makes it shiny yeah arsenic etching and stuff that kills

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people down the river but we don't worry about them right all right next

04:14

third domestic industries in free trade aren't protected if a foreign country

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wants to dump their semiconductors in America at a third of the going market

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price well if the country behind them is bankrolling that aggressive

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act looking at you Taiwan well there's usually little the American company on

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its own can do to protect itself from great economic harm.. all right moving on

04:36

Four; working conditions aren't monitored so conditions are ripe for human abuses

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in all shapes and forms from minimum wage issues to health violations [Smoke bellowing from factory plant]

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basically with no recourse and hey check out this picture of all the 40 plus year

04:49

olds working in the Indian fireworks factory bringing that snappy amazing

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fourth of July production to your backyard you know they're all dead that [Man stood by graveyard]

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was the point they're all right fifth in a free trade environment government

05:03

simply collect less from taxes and this is a problem because well governments

05:08

have lots of things they should be spending our tax dollars on right?

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