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Balancing tradeLast week's announcement by South Korea that they will allow shipment of bone in American beef, less than 30 months of age, was a big victory for free trade advocates inside and outside agriculture. Korea stopped importing U.S. beef when this country had its first case of Bovine Spongiform Encephalopathy (BSE) in 2003 and found it to be an excellent means to gain political support from their domestic beef industry. It took a change of government in Korea for the import restrictions to be modified and shows how difficult it is to keep trade flowing worldwide. Keep in mind that we are going to have a change of government here in the U.S. in less than a year and Democratic candidates are getting great traction by bashing free trade when speaking to voters in manufacturing states like Michigan, Pennsylvania and Indiana. That could lead to the next Congress and president making changes to our trade policy. In a world where action causes reaction that change could impact agricultural exports and lower farm prices. We are inherently protectionists. We want others to buy what we have to sell; but we don't want to compete with them on our own turf. We seek an advantage for our product by placing others at a disadvantage. Tariffs are an easy way to add cost to an import and make the domestic product more competitive. In simplistic terms, the tariff money goes to the government and the profits go to the company. The workers vote for the incumbent lawmakers and the company makes campaign contributions to their coffers. If we only produced enough for our domestic needs, this type of system could work well. But as a country that has the capacity to produce more raw materials and manufactured goods than we can consume, we turn to exports to expand our economy. We also have the issue of cost to the consumer. In Korea, during the ban on importing U.S. beef, the consumer had a limited supply at a high price. Slaughter cattle were valued at around $5,000 per head. U.S. beef of Choice grade could be put in the meat case for less than half that price. When consumers feel they are victims of government policy, they tend to vote out the offending government and replace it with a new one. As an extreme example of the value of trade, compare South Korea to North Korea. On the same peninsula with only an arbitrary border between them, one has a closed society that has starved its people and kept them in bondage, while the other has become a manufacturing powerhouse, fitting somewhere between Japan and China in its progress. The difference in the Koreas is trade. The gross domestic product of North Korea is $1,000 per person, while in South Korea it is $18,000. South Korea has a strong balance of trade that generates a growing level of wealth. North Korea has found some exports attractive, especially counterfeit U.S. $100 bills, weapons and drugs. No country can keep everything in balance as long as there is a framework for trade that challenges industries to be low cost producers. In the years following World War II, Japan manufactured cheap items that were sold in the United States. As Japan became more prosperous, they raised their skill level and the pay of their workers. Japan began to produce electronics, cars and steel that they sold into the world market. The cheap textiles and other manufacturing went to China. Steel making moved to Brazil. China is growing its economy and raising its standard of living to the point that basic manufacturing is migrating to Vietnam and countries in Africa. All nations need raw materials as the basis for a sophisticated society. Extensive lands are required to produce enough agricultural bounty to feed more than the domestic population. These lands are found on all temperate and tropical continents but some are more productive than others and have greater infrastructure for shipping. The U.S. would lose out on soybean production if Brazil had roads or railroads in its interior. As it is today, the increased cost of transporting Brazilian beans offsets their cheap land and labor. The world market only sees the product at their port and the supplier who can deliver the highest quality at the lowest price wins. Setting up a framework for world trade seems to be a maddening experience. The General Agreement on Tariffs and Trade (GATT) gave way to the World Trade Organization (WTO), which moves so slowly that bilateral agreements seem to trump all other forms of trade negotiations, which brings me back to Korea. It appears South Korea is finalizing its bilateral trade agreement with the United States by moderating its stance on U.S. beef. Perhaps they see it is in their best interest to strike a deal that opens both markets before a new administration in this country changes trade policy and closes ours. Editor's Note: This is Ken Root's 34th year as an agricultural reporter. He grew up on a small farm in central Oklahoma and started his career as a vocational agriculture teacher. He worked in Oklahoma, Kansas and Missouri as a broadcaster and was the original host of AgriTalk. He has also been the executive director of the National AgriChemical Retailers Association in Washington, D.C. and the National Association of Farm Broadcasters in Kansas City. Ken is now the lead farm broadcaster at WHO and WMT Radio based in Des Moines, Iowa. He has been a columnist for HPJ and Midwest Ag Journal for seven years. 4/28/08 Date: 4/24/08
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