Global Trade Shrinking Alarmingly

December 11, 2008

Many countries reported trade figures this week. In times of recession, more meaningful information can be gleaned from the trends in exports and imports than from movements in trade balances. The World Bank is projecting a 2.1% drop in global trade next year, and that will be a key channel through which the recession among advanced economies gets transmitted to economies at lower levels of full development.

Today, the United States reported monthly declines in October of 2.2% in exports and 1.3% for imports. Canadian export volumes fell 1.6% between September and October, and import volumes dropped by a sharper 3.6%. Earlier this week, British trade data revealed monthly declines of 3.0% in export volumes and 1.5% in real imports. The nominal value of Chinese imports swung from an on-year increase of 15.6% in October to a 17.9% drop in November, and exports fell 2.2% in the year to November after posting a 19.2% rise in the year to October. French export and import values fell by 4.5% and 1.0% in October compared to September. Much of Europe looks to Germany as an engine of growth, but the region’s largest economy reported October declines of 3.5% in imports and 0.5% in exports. New Zealand import volumes dropped 5.0% in the third quarter. Most shocking of all, Japanese seasonally adjusted exports and imports plunged by 9.4% and 12.2% between September and October. Foreign orders for Japanese machinery plummeted 37.2% in October and 44.2% from October 2007

Trade amplifies business cyclical trends. The progressive dismantling of barriers to commercial flows between nations engineered through a series of multilateral trade agreements was a major factor behind strong global developments, both vertically and horizontally, since World War II. Political forces against globalization succeeded in preventing successful completion of the Doha Round of trade talks. The United States, which played the leadership role in the postwar movement toward freer trade, shirked that responsibility during the George Bush administration and threatens to become more hostile toward free trade in the name of fair trade now that the Democratic Party controls both the legislative and executive branches of government.

Shifting attitudes about trade were not the main cause of the current global recession. With a severe downturn now in train, shrinking trade will exaggerate its steepness, and misguided thinking that sees trade as a threat instead of a promoter of economic growth will make eventual recovery more fragile.



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