The Dominion. MONDAY, NOVEMBER 15, 1909 THE BALANCE OF TRADE.

Dominion, Volume 3, Issue 664, 15 November 1909, Page 6

The Dominion. MONDAY, NOVEMBER 15, 1909 THE BALANCE OF TRADE.

The balance o! trade or the equation of international trade is the balancing of tho amount due by a country for goods, imported, etc., with the amount due to it lor goods exported, etc. These amounts must,_ in the long run, tend to an equality, for it is impossible for a nation & continue indefinitely ta import more than it exports. A timo must come when its creditors insist on payment, National bookkeeping, so far as it pertains to foreign trade, has its debit and credit pagc3, and tho result of their comparison is tho balanco of trade. The balanco of trade is finally perfect, but it may take a long timo to bo perfected. According to PRorESSOR J. RtrsSßLli Smith, of the Wharton School of Com-merce-and Finance, University of Pennsylvania, there are four stages in its ovolution.% The first stage is the equipment stage, in which the people of a country are borrowing heavily from tho people of some other country to get the means to equip their land for production. During this period tho imports exceed the exports. The second stage is the interestpaying stage, during which ordinary, wants of import consumption are paid, for by exports, and in addition other, exports are sent out to pay interest, wherefore the intorest-paying stage has a surplus of exports over imports. The , third stago is tho foreign investment I stage, during which tho country is sendi ing_ out goods for the building of fac-. Tories, railroads, and other equipment in other countries. During this third stage also, the exports are likely to exceed the imports. The fourth and final stage is the interesting-receiving stage: and the return of investment stage, when, tho loaning country is receiving interest payments m the form of produce, and possibly occasional returns of principal, fhis makes tho imports greatly exceed tho exports. New Zealand mav be regarded as occupying a position between tho first and second stages. Tho exports exceed _ tho imports in varying degree, sometimes the surplus is sufficient to meet tho estimated interest obligation, and at other' times not. When tho surplus of exports over imports falls short of tho interest duo, then the borrowing, which is resorted to in some form or another, serves to cover tie deficiency. There may bo a transfer of securities, for trade finally balances, although it may take muchtinie for tho balance to bo paid, and it is often paid by well-nigh invisible means. But the trade balances are paid at last in goods or services. The various elements of indebtedness, some or all of which must be taken into account in connection with tho equation of indebtedness of any particular country, may be summarised as follows :— 1. Imports Mid exports Of goods. 2. Loans obtained. and loans given. 8. Tho interest, on loans'due .to or by tho country. ■>'■■• •',- ■ ' ■ ■ i. Repayments of loans to or by tho country. 5. The earnings of Native merchants Ifvinj abroad. '0. The expenditure of tho Government - abroad.

.7. Tributes due to or-by the country. ■-.■ . : 8,. Expenditure of citizen* travelling abro»d.l 8. The expenditure of foreigners in the country. 10. Profits and commissions on agencies; ' .11. The cost' of services rendered by the snips of the country, where it has a large mercantile marine.. In : considering the trade balance of, New. Zealand,'we bear in.mind,that we ..are paying interest' on : borrowed money; toe interest payablo by the .State u approximately £2,250,000, by municipalities £660,000, and by private individuals, say, £1,000,000. The amount of the registered mortgages on March 31 last was oyer seventy, millions sterling, and we are assuming • that only twenty millions of this amount. has been obtained from outsido the colony, which, at. an average of 8 per cent., .would yield.one million sterling. These three items account for,- say, £3,800,000. There are other elements to-be taken into consider- '. ation, such, for instance, interest on company debentures,' dividends on Bhares, insurance, freights, etc • Furthermore,, we. have the expenditure of the NcwZoai landers travelling abroad, and of tourists travelling in New Zealand; tho remitianoefl by pooplo hero to rolativea and friends abroad anoV vice versa, aiidtha I transfer of capital, .such, for, instance, I as will take. plaoe when the immigrants byithe Tnrakina.land te-morrow.. It is impossible, to, estimate these cross-move-mettts. with any degree of accuracy,'but they ill take their proper places in the settlemont .of. trado! balances. Wo propose .omitting these invisible items, ; and deal oaljr with interest, and the exports

and imports. • It is necessary to examine tho figures of 1007-S, as well as thoso for the past year, to obtain a full appreciation of tho position. Tho figures for tho former year woro as under:— ■ Imports, 1907-8 17,750,868 Interest, say 3.G00.000 21,350,808 Exports 1G.370,587 Deficit 4,080,281 21,350,608 The doficifc shown above' was, to Eomc extent, reduced by tbe borrowing on the part of tho State and local bodies, and if we place the amount at £3,000,000, wo ' v-ill most likely bo undor tho mark. Tho actual deficit would thus be, say, £1,930,000. Taking the figures for 1908-9 we get thofollowirg:— A Imports, 1908-0 li,9ie.olH) Interest, gay 3,700,000 Deficit previous year 1,990,000 | 20,500,000 , Exports ,'. 18,700,000 Deficit 1,896,000 20,596,000 The borrowings in the past year wow, we should say, larger than in 1907-8, and £4,000,000 may be safely accepted as the. probable amount. Thus the deficit'of £1,896,000 becomes a credit balance of £2,104,000. This credit-will be. used up in .paying for goods or services', arid, therefore, there is every probability of imports/ expanding during the current year. The credit also ,explains to somo oxtenfc tho improvement in business, which is certain to gain in strength this year, bocause of tho fact that the exports will be on a largo scale! and the borrowings will be substantial, although a good deal of the latter will bo spent abroad and not affect tho trade balance.