Global Trade Declined by 12% in 2009

110 globe wiki.jpgAccording to the World Trade Organization, global trade plummeted by 12% last year. The Guardian says this is the fastest pace of trade contraction since World War II. The fallout of the financial crisis has thrown world trade off course. It might not be easy get back to the previous level of trade either.

Global trade is good for everyone involved. For developing nations, it's especially important because they can often produce goods more cheaply than more developed countries and experience significant growth through exports. The more advanced economies enjoy cheaper goods thanks to those developing nations. When trade suffers, everybody is worse off.

How did the financial crisis cause such a big problem for trade? The major source of the trouble comes from the demand side. Firms and individuals aren't spending the way they were prior to the crisis. Unemployment is higher than usual in some countries, especially the U.S., and that constrains consumer spending. Shaken firms are hoarding cash and buying less.

On the supply side, it might not seem too bad: interest rates are relatively low. But as just mentioned, many businesses aren't spending, so they have no need to borrow. Some of those who might be willing to spend more aren't finding credit as easy as it used to be, with lenders having stricter underwriting requirements than before the crisis.

The Guardian reports that WTO head Pascal Lamy suggests more progress in the latest Doha round:

Completing the Doha round, which has already lasted more than eight years, could help to open up new sources of revenue for recession-hit countries, and kick-start a world recovery, he said.

Making trade easier would certainly help, practically by definition. But I see its effect as potentially minor: until consumers and businesses decide to start spending again, demand won't rise. And without greater demand, more abundant supply can only do so much.

Unfortunately, it might just take time. Once the battered economies improve, demand will as well, and trade should recover. Until then, it will remain weak.

(Image: Wikimedia Commons)

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

Saving the Bees

Honeybees contribute more than $15 billion to the U.S. economy. A short documentary considers how desperate beekeepers are trying to keep their hives alive.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In