Both approaches look rather impossible to me: the former would mean allowing stuff that might even be illegal in the U.S., the latter would mean that e.g. all videos showing alcohol would have to disappear.
What is your specific example here?
Also note that this is not about allowing videos onto the platform, but only about next to which videos to show ads. And I would guess that most ad customers would want rather strict rules, so it makes sense for YouTube to listen to their customers here.
You mention only extremist polarized positions, full anarcho-libertarianism or ultra-global-conservatism. There are many more moderate positions in between, or even entirely different solutions, such as opening up the YouTube brokerage market.
It's just one more step in the inevitable bifurcation of the Internet down to national barriers / legislation / cultural beliefs. In the not very distant future (within 15-20 years), the commonality laws, things nations have in common with regards to legislating the Internet, will be the minority. Every nation will want and will set its own unique policies (on top of any other agreement lines as eg in the EU).
There's no possible outcome for the Internet other than becoming another well regulated medium, given a few more decades. The laws will pile up, it's what politicians do, and the Internet is the single biggest target.
The US and any other country in the world is far from perfect but it doesn’t mean there aren’t better and worse, much much worse moral systems out there today.
In most countries it's unusual to BEEP swear words on TV, and in some other countries nobody will bat an eye at casual nudity, even in TV shows aimed at children.
In some places, nudity and sex are considered fine for children.
In some places, LGBT topics, or even showing people who are openly gay discussing something entirely unrelated would be considered unacceptable.
In some places, standards for nudity are very different, for example failure to wear a headscarf would be unacceptable in parts of the world.
In the US, this would spark an outrage.
Most German public TV channels try to upload all content to YouTube, but sometimes some videos aren't available there due to YouTube's restrictions.