Personal Wealth Management / Economics

Fisher Investments Explains How Trade Affects the US Economy

International trade can bring benefits and hazards for the countries, businesses and individuals affected by it.

This video from Fisher Investments examines how international trade works, as well as how it affects the US economy.

Transcript

0:01
[Music]
0:04
every day
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the united states trades with other
0:07
nations around the world
0:09
and while international trade often
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generates charged news headlines
0:14
it's important to cut through the
0:15
clutter and examine what trade
0:17
is and its true effects for individuals
0:20
businesses and the entire u.s economy
0:24
first of all let's define trade trade is
0:27
an exchange of goods and services
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between countries
0:30
countries trade with one another to help
0:32
meet their consumption needs and find
0:34
new markets for their products
0:36
one side of the trade equation is
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imports imports are goods and services
0:40
brought into a country from abroad in
0:43
2019
0:44
the united states brought in about 3.1
0:47
trillion dollars worth of imports
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everything from electronics and apparel
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to computer services and medical
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equipment
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about 80 percent of that amount was
0:56
goods and the remainder
0:58
was services the other side of the trade
1:00
equation
1:01
is exports which are goods and services
1:04
sent to other countries the united
1:08
states
1:08
shipped around 2.5 trillion dollars
1:11
worth of exports to other countries in
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2019
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that includes everything from aircraft
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and agricultural products
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to movies and music goods made up around
1:20
two-thirds of total exports
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while the united states trades with
1:25
countries all around the world
1:27
three nations in particular make up the
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us's top trading partners
1:31
according to 2019 data the top importers
1:34
to the u.s
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are china with about 452
1:38
billion dollars worth of imports to the
1:40
us mexico with over 350 billion dollars
1:44
worth of imports
1:45
and canada who sends us around 320
1:48
billion dollars worth of imports to the
1:50
us
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canada is also the united states biggest
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export destination
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receiving around 292 billion of u.s
1:58
goods
1:59
mexico is second at around 256 billion
2:03
and china is third receiving around 107
2:06
billion dollars of u.s
2:08
exports assessing a country's trade
2:10
means examining the levels of both
2:12
imports and
2:13
exports that leads to a couple of
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different ways to stack up those numbers
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a common way of measuring trade is the
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balance of trade
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this simple equation subtracts the value
2:26
of a country's imports from the value of
2:28
its exports
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if the exports are greater than imports
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the country has a trade
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surplus trade surpluses are uncommon for
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the united states
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the last time the u.s exported more than
2:39
it imported
2:40
was 1970. if the value of imports
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exceeds the value of exports
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the country has a trade deficit
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according to the bureau of economic
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analysis the united states has an
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overall trade deficit
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with the rest of the world the u.s
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imported about 500 billion more in goods
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and services
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than it exported in 2019.
3:02
trade deficits are commonly thought of
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as a bad thing
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that's understandable since the balance
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of trade view treats imports as a
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negative
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however what's common isn't necessarily
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what's most accurate
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a different way of measuring trade is
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combining exports and imports to arrive
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at total trade
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the concept of total trade casts both
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imports and exports
3:25
as positive economic activities at
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fisher investments we view total trade
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as a more meaningful concept when
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assessing a country's economic health
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rising exports mean u.s goods are in
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high demand elsewhere
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a rise in imports is a positive signal
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that u.s businesses and consumers are
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willing and able to spend
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indicating healthy domestic demand trade
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between two countries can be easier or
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harder
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depending on how many restrictions are
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in place
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free trade is the reduction of economic
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trade barriers
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typically through formal agreements
4:00
between two or more countries
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as of 2020 the united states has 15 free
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trade agreements
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with 21 different countries the u.s
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mexico canada agreement reduces trade
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restrictions
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among those three countries the united
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states also participates in the
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dominican republic central america free
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trade agreement with
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six other nations additionally the u.s
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maintains
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separate free trade agreements with a
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dozen other countries
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trade can also become aggressive a
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country may try to protect certain
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domestic industries
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from foreign competition by restricting
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imports in those industries
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when two nations retaliate against each
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other with escalating trade restrictions
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it's often called a trade war there are
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a few common weapons in a trade war
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tariffs
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are taxes on imported goods in the
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united states
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tariffs are paid to u.s customs by the
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u.s registered firm that's importing the
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goods
5:00
often though the cost of tariffs is
5:02
passed along to the consumer through
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price increases
5:05
another common weapon in a trade war is
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a quota
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which is a physical limit on how much of
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that particular good can be imported
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one of the most extreme trade war
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weapons is an embargo
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this is a partial or complete ban on
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trading with a country
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who makes decisions regarding
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international trade
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in the united states the constitution
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originally gave congress
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ultimate authority to regulate trade
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with other nations
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over time though congress ceded much of
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that control to other parts of the
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government
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now all three branches of the us
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government have some influence on
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regulating trade
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but why would economies want to engage
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in international trade
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international trade allows an economy to
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focus on its comparative advantages
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that's the ability to produce goods and
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services of a particular quality
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more efficiently than another country
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for example the united states has
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comparative advantages
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in diverse products and services from
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aircraft and financial instruments
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to entertainment and sports a country
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like france has comparative advantages
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in wine and cheese production
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trading with other countries and
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focusing on comparative advantages
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allow economies to do what they do best
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become more efficient over time and give
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their citizens
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access to goods and services from abroad
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two countries that specialize in their
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relative comparative advantages
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and trade with each other can both gain
6:30
from trade
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so how has trade affected the u.s
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economy
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according to 2019 research from the
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business roundtable
6:38
a u.s trade industry group around 39
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million u.s jobs rely on international
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trade
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that's about 20 of total employment and
6:48
every u.s state saw
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net employment gains from trade with
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other countries
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what about businesses international
6:55
trade can offer businesses
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access to more customers lower cost
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labor
7:00
and more resilient supply chains however
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international trade can also open u.s
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businesses
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up to competition from lower cost
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imports
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international trade isn't just for big
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businesses and multinational
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corporations though
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according to 2018 data from the u.s
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census bureau
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almost 98 of us exporting companies
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had fewer than 500 employees over 97
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percent of importing companies
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were small businesses too and the effect
7:31
of international trade on individuals
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while trade gives consumers vastly more
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choice
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2017 analysis from the petersen
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institute for international economics
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suggests that the u.s sees 100 000 net
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manufacturing job losses per year
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because of international trade that's
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about 39
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of all manufacturing job losses however
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since world war ii
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global trade has helped build u.s
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household wealth
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since 1945 annual gross domestic product
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or gdp
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her u.s household has increased by over
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18 thousand dollars
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because of international trade that's
8:09
according to the economic policy
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institute
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who also found that trade can benefit
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wages their research showed that
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companies that engage in importing
8:17
or exporting tend to pay more than
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companies that weren't involved in
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international trade
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trade is an economic interaction between
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two countries
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it can be seen as either cooperative or
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confrontational
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when trade is open consumers and
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businesses have access to more goods and
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services
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than the u.s economy can provide often
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at a lower cost
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when trade policy becomes aggressive
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consumers often end up paying the price
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literally and while trade dynamics have
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caused some sectors like manufacturing
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to shed jobs
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the us economy businesses and
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individuals
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have all benefited massively from
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international trade
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thanks for watching you can explore more
9:00
about international trade
9:01
at our website fisherinvestments.com
9:04
where you'll find the infographic that
9:06
inspired this video
9:08
if you enjoyed this video you can click
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