Finance: What is Protectionist?

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Transcript

00:24

with the aim of financially protecting the businesses with in

00:28

that country Example it is protectionist policy to charge fifty

00:34

dollars a bottle import tax against French wines being imported

00:39

into California where local Napa wine people have a tremendous

00:43

lobby and for some strange reason are afraid of competing

00:46

mano a mano or a rather bottle Oh bottle o

00:50

We're local Napa people confident that their wine was a

00:53

better product than that of the French Then they wouldn't

00:56

bother pushing the government tohave taxes against them Damn foreigners

01:00

exporting their swill Well this process sounds rational but in

01:03

practice the game is oh so never simple For starters

01:06

many countries actively back They're exporting companies in a weird

01:10

kind of economic war called dumping which has nothing to

01:13

do with either countries Bathroom habits The process of dumping

01:16

usually involves high fixed costs high sunk costs in high

01:20

capital expenditure industries Plus well then there's the manufacture of

01:25

semiconductors Yeah such that a country with easy access to

01:28

very cheap labor cheap capital and no regard to environmental

01:31

pollution Well they can match with arsenic or gallium arsenide

01:35

Onda silicon semiconductors at prices dramatically less than comparable builds

01:40

in the United States with the hope of either corrupting

01:43

those companies are essentially buying market share so that they

01:46

become a major player around the world Will the competitive

01:49

situation then demands all kinds of moral and ethical questions

01:53

revolving around what the notion of quote fair unquote trade

01:56

means Like you know when it's not about love and

01:59

war Well the same friction gets laid in a protectionist

02:02

policy where rather than imposing taxes are import duties from

02:06

foreign distributors local countries place a quota on the quantity

02:10

or volume of product allowed into the country From that

02:13

interloper at the extreme end there's a complete embargo blocking

02:17

all importing of that good strategically politicians aim protectionist policies

02:23

domestic industries because in essence in the short run each

02:27

goods sold to a foreign distributor exporting their products into

02:31

the U S Takes away some value from a domestic

02:35

taxpaying producer Right So if we bought all our cars

02:38

from Japanese and Korean producers and bought none of them

02:41

from American producers well all our dough would be s***

02:45

doubt overseas right Well Additionally balance of trade then becomes

02:48

an issue If the U S Could import a hundred

02:49

percent of everything it uses at half the price at

02:52

which it manufacturers that locally well life would be grand

02:55

for Americans living large on the Macy's White Flower Day

02:58

half off sale for about two quarters or a male

03:00

maybe half a year right Think about it If you

03:03

could buy that gap shirt instead of paying forty eight

03:06

dollars for the rugby style thing you could buy it

03:08

for twenty four dollars for the exact same shirt Well

03:11

why wouldn't you after that our existing industries would essentially

03:15

evaporate is meaningful economic entities and with no revenues coming

03:19

to them from sales Well there'd be little money to

03:21

send across our borders to buy things like oil and

03:24

Japanese trucks Okay well adding yet more complexity to the

03:27

notion of protectionism This black and white picture of importing

03:30

and exporting one hundred percent of any given good is

03:32

usually incomplete That is Mercedes makes its engines in Germany

03:36

but stamps its bodies in the U S While using

03:39

tires from Korea France and Japan and windshield wipers and

03:43

other accessories from other manufacturers in nonunion red states in

03:47

America and from Latin America They're all assembled in North

03:50

Carolina So how do you even begin to calculate what

03:53

a protectionist policy would do in this very cloudy vague

03:57

sense of who owns what who benefits from what where

04:00

and how much protectionist policy would do to help her

04:03

harm the global balance the power The broader goal here

04:05

and general notion is that the world receives a quote

04:07

peace dividend unquote when company's heir not at war in

04:11

this unhealthy way consumer's benefit when companies simply compete to

04:15

deliver higher and higher quality product for incrementally better value

04:18

to the end user If protectionism gets in the way

04:20

of that liquid flow of Darwinian economic competition well it

04:23

just adds friction where it really isn't needed And it's

04:26

simply inefficient So to recap protectionism stopping the flow bad

04:31

but the's thing stopping the flow good