[MUSIC] >> We've seen then that there has been a rise in protectionism in the world, and if we watch current events and we watch the political debate, we know that it's there. We know the threats to interfere with NAFTA, the putting of the TTIP on the shelf, the decision of Britain to leave the EU, these were all part of an anti-globalist sentiment. What would this do to the world? What happens to the world if this tendency towards rising protection is a misconsolidated? Well, to answer the question, all we have to do is run reverse on everything that we've been saying about the benefits of free trade. The benefits of incorporating our economies and using each other's greater efficiencies to maximize the welfare of all. Of course, we would find there'd be less efficiency in the world, there's going to be less consumer surplus, there will be lower growth, and therefore fewer jobs because GDP generates employment. The export industries are going to have smaller markets, so there's less demand for them. Remember, we all import but we all export too. Some jobs might return to the importing sectors. But if for example the United States interferes with an industry that's labor intensive in Mexico and decides it wants to bring the jobs home, it's not likely that the American company will hire the same number of workers that it would hire in Mexico. It might turn to mechanization to reduce its cost to be able to keep its competitiveness. We also have to remember that importing creates some jobs, so that when I'm importing a car or an avocado from Mexico I have a company that's doing that importation, I have people who are distributing, there's all of that structure that creates jobs that would be lost. We also have to remember that wages in the importing sectors would rise. So this would presumably, if the only reason for lower wages for the unskilled is trade, then if we replace trade, the wages of the unskilled workers would rise. But in the exporting industries those wages would fall. Also, one thing that we could predict is that imported items would increase in price. Remember that we said that the poor, the low income groups, are the ones that benefit the most from importing these items. So, as those prices rise, the consumer surplus would be reduced and the poor would be hit hardest. And there've been lot of economists working on this. And just to cite one study, there were two economists that found in an average country people on high incomes would lose 28% of their purchasing power if the borders were close to trade, but the people on the lowest income, the poorest 10%, would lose 63% of their spending power because they tend to buy relatively more imported goods and spend more of their income on consumption in general. Also, exported items, their prices would fall. We saw this when we looked in the partial equilibrium analysis. Sometimes the prices of exported goods go up if we trade. There would be less competition, which would probably mean low equality, less variety. And there would also be a loss as we said in the consumer surplus or in the welfare for the country. On the positive side as well, we have to remember that in developed countries trade leads to more inequality, and in developing countries it leads to more equality, so these two trends would be reversed. We also should remember that many developing nations have come out of poverty, and it's not just China, China is very visible, but many other nations have come out of poverty by specializing, as economist predict, in goods that use unskilled labor. And this has been their road out of poverty moving those workers into the middle class and leading them into a higher level of income and development, that road would be closed if trade would closed off. So you can see that we have much more to lose by protecting than we have to gain. And just to conclude this section, I want to remind you of all of the benefits of free trade, and these are models, as I said, that almost every economists agrees upon. All countries gain from trade, there is a group of losers, we need to be sure that we compensate those people with part of the gains of the winners. The way to compensate them is not to interfere with free trade, because as protectionism rises we give up all of the benefits that trade brings to us. So, this concludes our section on trade. What we're going to move into in the next section is something that doesn't sound very interesting, the balance of payments. But you're going to see that as we study the summary of all the transactions, the economic transactions among countries, we're going to understand the growth model that different countries are using, the global growth model, some of the causes of the crises, and get some keys about where we're going in coming years. [MUSIC]
