Chapter 3. Global trade in reverse gear
References [ CPB | General | Scientific ] SummaryAuthors
Jos Ebregt & Wim SuykerContact: Jos Ebregt
In this chapter
Production networks have become more international
Worldtrade has exploded in the past thirty years
Worldtrade crashes in three crazy months
Large differences in decline of exports worldwide
Exports of capital goods collapsed
The Chinese, Japanese, Arabs finance American trade deficit
References
CPB
General
Scientific
Summary
Since World War II, world trade growth has been phenomenal. Around the turn of the century, twenty times as many goods were traded internationally every year as fifty years before. The worldwide trend towards free trade has enabled a spectacular degree of division of labour across national borders. Over the past decades, trade has given rise to the emergence of international supply chains and has brought enormous welfare gains worldwide.In late 2008, trade growth suddenly went into reverse. In just three months, trade flows collapsed at a speed similar to the downturn that occurred in the early 1930s, during the first years of the Great Depression. As stunning as the depth of the slump was its global reach. Across the globe, trading nations large and small were facing plummeting export sales at virtually the same time.
The principle cause of the collapse in trade was failing demand. In the third quarter of 2008, the financial crisis, which had been raging for over a year, caused production to decline in all major economies. As both producers and consumers were facing declining incomes, they scaled down capital and consumption expenditure, causing import demand to nosedive. The 'Keynesian' nature of the recession explains why trade in capital goods and durable consumer goods suffered the most. Trade as a whole was hit extremely hard because industrial products make up a large part of it. Still, failing demand and the composition of trade flows cannot fully explain the enormous decline in trade that occurred towards the end of 2008. Other factors at work were, probably, super-fast decision-making in the relatively new international supply chains, and, almost certainly, a severe disruption of trade credit, an age-old institution.
Falling incomes and rising unemployment may tempt governments into seeking ways to shelter national markets from foreign competition. Were this to happen on a large scale, the impact on trade would be disastrous. Early signs are not encouraging. Chronic international imbalances are another cause for concern. Since the early nineties, oil-exporting nations in the Middle East and export-oriented economies in East Asia are running persistent and growing current account surpluses, while the US are facing a ballooning deficit. The return to more balanced relations, which seems unavoidable, could prove painful and chaotic.
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Contents
- Ch 1: The emergence of the crisis
- Ch 2: How a small problem became a big one
- Ch 3: Global trade in reverse gear
- Ch 4: Temporary crisis, permanent damage?
- Ch 5: The housing market during the crisis
- Ch 6: Try and try again on the labour market
- Ch 7: Throwing caution to the wind!
- Ch 8: Who bears the pension loss?
- Ch 9: Keeping banks in check
- Ch 10: Credit crisis and climate crisis: the one doesn't resolve the other
- Ch 11: How painful is the crisis?
- Ch 12: Learning from the crisis
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