February 09, 2003
A Short Dialogue on International Trade in Agricultural and Fishery Products

"Okay. One of the things that we are going to eat for lunch has travelled 9000 miles--almost halfway around the world--to land on our table. What is it?"


"Very good guess. But no. Bananas come from the Caribbean and Central America, and travel only 3000 miles or so to get here. It's the smoked salmon, from Tasmania, island off of the southeastern tip of Australia."

"I've heard that most animals native to Tasmania are endangered. Is that true?"


"It's certainly true that large Tasmanian marsupials are under very heavy pressure from introduced Eurasian forms that fill the same niches..."


"But does anybody have an idea why I would buy smoked salmon from Tasmania--Royal Tasmanian brand?"

"So that you can torture your children with another boring lecture about international trade, the international division of labor, and the importance of human pwogwess through the mutual weduction of twade bawwiews?"

"Plausible, but not true in this case..."


"Because they were cheap?"

"Yes, exactly, why were they cheap--half the price of Alaskan smoked salmon?"


"Either because you got a bargain, or because you don't know something about the quality of Tasmanian salmon that you really should know."

"Both excellent possibilities. Remember the man who was over for dinner last week? The one who asked you what you thought was the most common name of a city in the United States? He won the Nobel Prize in Economics for developing ways to think about your second possibility--that we're about to eat something that tastes really nasty. But I think the first possibility is more likely. Why is salmon from Australia a bargain right now?"


"You tell me, Dad."

"Because Australians want to buy a huge number of imported goods right now, and their demand for U.S. dollars is high. Because their demand for U.S. dollars is high, they've pushed up the price of the U.S. dollar in terms of Australian dollars. That means that the Australian dollar right now is cheap--about 50 U.S. cents. And that means that things made in Australia--like Tasmanian smoked salmon--are cheap too."

"Well, we'll find out if it's really such a bargain very soon."

"BANANAS EXPLODE!" [General sustained laughter]

"It's too bad we've never been to visit Tasmania..."

"Well, right now a Tasmanian fish has come to visit you. But somehow that's not the same, is it?..."

Posted by DeLong at February 09, 2003 04:02 PM | Trackback

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The shift in the value of the US dollar probably has a lot to do with the relatively attractiveness of American equity markets as well. It is neat to chart the value of various currencies against the American dollar over the last ten years. The relative value of many of currencies (Australian Dollar, British Pound, French Franc, Euro, etc.) bottom out vis-a-vis the USD in the last quarter of 2000.

Posted by: dave l on February 9, 2003 04:46 PM

Wow. Lunch with the Berkeley graduate students in international trade sounds \i{fascinating}!

But, Prof. DeLong, referring to your students as children and making them call you Dad is perhaps pushing the mentor-mentee thing a little far.


(I can't get you to Tasmania, but I can get you 6 or so weeks in Melbourne which isn't far away. How you get to Tassie from here is up to you ...)

Posted by: Michael Harris on February 9, 2003 04:48 PM

(Hmmm. Note to self. Don't get wires crossed re formatting codes on different boards.)

Posted by: Michael Harris on February 9, 2003 04:53 PM

Don't take the ferry from Melbourne to Tasmania unless your family is immune to seasickness. Tassie is well worth a visit if you want somewhere that's visitor-friendly but not overcrowded. For an economist its interesting to see the effects of natural trade barriers created by being distant from anywhere.

I hope you enjoyed your Tassie smoked salmon. Tastes good, & is quite safe (the water is very pure - it comes from true wilderness). But its all farmed - wild salmon tastes better.

Posted by: derrida derider on February 9, 2003 08:08 PM

If only that explanation in terms of trade was true, but of course the vast majority of trade in currencies is speculative and not attached at all to trade flows. If it was attached to trade flows I think the world would be a lot better place.

Posted by: Ian Welsh on February 9, 2003 09:55 PM

and the Nobel Prize winner at lunch was. . .
my vote rhymes with bakerlof.

Posted by: roublen vesseau on February 9, 2003 10:01 PM

I was in Tasmania three weeks ago.

"How beautiful is the whole region, for form, and grouping, and opulence and freshness of foliage, and variety of colour, and grace and shapeliness of the hills, the capes, the promontories; and then, the splendour of the sunlight, the dim rich distances, the charm of the water-glimpses!" - Mark Twain

"...if paradise exists on earth, it is in the wilderness that is the south-west corner of Tasmania."
- John Humphreys of the Sunday Times

"Then the capital, Hobart, and my mood changed yet again. The wonderful depth of Australian skies! I think that if I look hard enough, I shall see the apex of heaven. Then there is the no-nonsense ebullience of the people ... I had seldom been anywhere more welcoming. ... [Tasmania] is jam-packed with people who have deliberately chosen it as the site of the good life: somewhere to be kinder, more composed, more appreciative of important things.’
- Poet Laureate Andrew Motion

Posted by: William on February 10, 2003 03:19 AM

Is the Nine-Year-Old making bitter ironic comments about the fear of extinction of bananas? Poignant.

Posted by: Matt Weiner on February 10, 2003 06:04 AM

Our little conures are wild about bananas.

Posted by: anne on February 10, 2003 12:56 PM

Of course, if you'd wanted bargains a year or so ago you'd have looked to New Zealand - the exchange rate undershot bigtime, from 70 USc around 1996/97 to 40 USc a couple of years ago. But it's since headed up to 50 USc and that won't last - NZers tolerance of high interest rates, plus a strong economy the last few years, means overseas investors have been shifting quite a bit of money that way and so pushing the New Zealand dollar up against the US dollar (hmmm, I could probably word that better). You can't argue with a 20 year government bond rate over 6 percent - cue the interest arbitrage theories of exchange rates.


Posted by: Kerry Nitz on February 10, 2003 02:40 PM
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