Trade Flows Amplifying Global Recession

January 13, 2009

Imploding two-way commerce is playing a central role in the frighteningly rapid deterioration of the global economy.  Several countries released international trade figures today, reinforcing the abrupt drop in trade flows depicted in data released previously.

  • U.S. imports plunged 12.0% between October and November, more than twice as fast as the 5.8% drop in exports.  The deficit fell three times more than anticipated to a 60-month low.  Volumes accounted for a significant part of these declines.  Nominal imports from the Western Hemisphere were particularly weak, falling 27.2% from South and Central America, 21.3% from Mexico and 19.4% from Canada.  Latin America seems poised to get sucked more deeply into the global downturn.  U.S. imports from the EU and China dropped 19.1% and 16.9% from October levels.
  • Chinese imports, which had recorded on-year advances of 30.8% in the first half of 2008 and 22.2% in July-October, fell from a year earlier by 17.9% in November and 21.3% in December.  Many nations in the Pacific Rim like Australia had relied heavily on Chinese demand for insulation from the recession’s full brunt. Chinese exports fell on-year by 2.8% in December and 2.2% in November after gains of 19.2% in October, 23.2% in 3Q, and 21.9% in the first half.
  • Japanese exports and imports posted respective month-on-month declines of 17.4% and 10.3% in November and fell over the two months from September to November by 25.2% and 20.3%.  Japan’s trade balance on an unadjusted basis swung to a deficit of Y 93 billion from a surplus of Y 908 billion in November 2007.
  • The British merchandise trade deficit of Gbp 8.33 billion in November was the greatest shortfall in the 311 years of recorded data.  Total exports dropped by 5.8% in November from October, led by a 12.5% collapse in shipments to countries not in the EU.  Like elsewhere, volumes of trade are trending down.
  • Canada announced its smallest trade surplus since October 1997, embodying monthly decreases of 6.8% in nominal exports and 4.8% in imports.  Real exports and imports fell by 1.5% and 4.0% in the latest three-month period.
  • German export values plummeted 10.6% between October and November, cutting its trade surplus by 32.3%. Foreign industrial orders were 14.6% lower in October-November than their 3Q level, and November orders were 27% below their year-earlier level.
  • French exports dropped 10.2% between August and November, while imports in that three-month span fell 6.3%.
  • Taiwanese exports dropped 42.1% in December from a year before, led by a 54% decline in shipments to China.


Among the most famous graphs from the Great Depression depicting an inward spiral of shrinking world trade from January 1929 to February 1933 can be viewed by clicking on chart 8.  That infamous snapshot of relentlessly contracting commerce between nations was promoting by a wave of protectionist import barriers erected during the period.  In severe recessions, politicians are tempted to protect domestic jobs by limiting imports and subsidizing exports.  This industrial policy strategy seems sensible from the perspective of one player but leads to losses for everybody when all nations are doing the same thing.  It is said that in trade liberalization, continuing progress has to be made to avoid regressing.  Multilateral trade talks have repeatedly failed in the current decade.  The selected setbacks in trade documented in the bullet points above barely reflect protectionist government interference, but that will not necessarily remain the case.  If politicians go down the protectionist road en masse, the weakening of trade flows may intensify severely, and that would inject a whole different deflationary force into the current global recession.

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