US Ambassador Josiah Beeman is a near perfect caricature of Uncle Sam, in his appearance, his arrogance, and his disarming sense of humour. While, he is a hard person to dislike, his grasp of economics is poor, reflecting a uniquely American view of the world.

In justifying President Clinton's decision to "safeguard" the American sheepmeat industry by slapping tariffs on Australian and New Zealand (ANZAC) lamb imports while at the same time preaching free trade to the rest of the world, Beeman yesterday claimed that the USA had already done its bit for the world economy. By doubling its trade deficit, the US had, he claimed, made sacrifices; the US had sacrificed its own interest in order to get Asia out of its 1998 crisis.

The American view is pure old-school mercantilism: exports good, imports bad. Hence, all imports are understood to be an economic sacrifice. Beeman talks about "bearing the burden" of imports! Too many Americans do not seem to appreciate that the purpose of trade is to consume more goods and services from other countries; ie nations trade in order to import. Exports represent payment for the imports that we want.

The US terms of trade improved significantly as a result of the Asian crisis; meaning that American could buy more imports than before for a given quantum of exports. Mr Beeman sees that as a problem; long-suffering US consumers were, it seems, buying against their will more goods and services than they knew what to do with!

Mr Beeman was particularly naughty in his emphasis on the US trade deficit. He spoke as if trade was balanced when equal values of goods and services are exchanged. The accounting measure that really matters, however, is not the visible trade deficit, but the balance of payments current account deficit (CAD). Americans seem to have problems in understanding the CAD, which includes flows of profits and interest.

Now, the USA has become the world's dominant creditor nation in the 1990s. That means that America receives huge net flows of interest and profit. (We in New Zealand understand that very well!) As a result of these returns on its overseas investments, the US is able to import much more than she exports. That is the definition of a successful national economy. Further, if the US tries to balance its trade, it can only do so by running a huge balance of payments current account surplus. And if the US insists on sucking the world of its money and not spending it (which is what a large current account surplus means), then a world depression might just be the result.

The Ambassador also said that New Zealand lamb imports were coming into the US at 20-40% "under the market". Now the point of the safeguard clause in international trade law is to protect one's own producers from subsidised products that are priced well below the world market price (not the US market price). New Zealand lamb exports to the US have actually been set at prices above the world market price. Mr Beeman is really saying that New Zealand lamb is selling at 20-40% below the price of US produced lamb. That is not grounds for safeguarding. That just means that American lamb is too costly to produce, and that American capital and labour would be better employed in some other activities.

What is really bugging the American sheep farmers is that the world price for their product is falling. Well tough bikkies. That's what free trade is all about. Under free trade, you sell at the world market price or not at all. If the US expects other counties to buy US products at fluctuating world market prices, then it should reciprocate.

The US sheep industry can easily be safeguarded by the US Federal Government paying American sheepfarmers a subsidy, enabling them to sell in the US at world market prices. The US Treasury, if they are anything like ours, won't like that, however. Subsidies represent a cost to the US taxpayer. Tariffs, however represent a US tax paid in large part by non-US producers (eg the sheepfarmers who live in the environs of Clinton and Gore, Southland, New Zealand). If every country tries to get foreigners to pay their taxes, then the world economy would soon fall apart.

Finally, I must touch on a point noticeable in its omission from most of the debate. A US tariff on one kind of meat protects the US producers of all types of protein-based food. Perhaps the real problem in America is that the world price of lamb has fallen sufficiently to encourage some American consumers to eat more lamb and less beef. It is the powerful American beef lobby who stand to gain most from the 30-40% penal tariffs being placed on additional ANZAC lamb imports for the next three years.

© 1999   Keith Rankin

Rankin File | 1999 titles