World Trade Slumps as Protectionist Tendencies Reemerge
Trade continues to take a hammering during the continuing global economic slowdown. The OECD reports today that on a year-on-year basis, growth in the value of exports and imports of goods and services in the G-7 countries plunged, by 27.1% for exports and by 27.9% for imports in the first quarter. The sharp drop observed in Q4 2008 continued in Q1 2009, albeit less steeply.
In both comparisons, goods fell much more sharply at about twice the rates than those of services, the overall trend for both goods and services being largely determined by the high share of goods in total trade.
Since July 2008, G7 total merchandise trade values continued to decline, but at a slower pace since February 2009.
Japan seems to be particularly affected by the current crisis with a 26.7% slump in quarter-to-quarter exports and a drop in imports of 12.9% in Q1 2009. Year-on-year, export volumes plunged by a striking 42.1% and imports fell 18.7%.
The World Trade Organisation (WTO) is now forecasting a post-war record fall of 10% in the volume of world trade this year, slightly worse than its earlier 9% estimate, according to Oxford Analytica. While developed country exports are expected to be 14% lower than in 2008, the reduction in developing-country exports will probably be only 7%. Trade in cars and machinery, and primary and intermediate products, has dropped most sharply.
The WTO is now producing quarterly reports that track member countries’ tariff increases, new non-tariff and anti-dumping measures, and financial measures that favour domestic goods and services over imports. The latest report, just issued, shows that “resort to high-intensity protectionist measures” (ie blatant breaches of WTO trade rules) has still been contained, but shows no improvement in the general picture.
Even if economic decline is levelling out, unemployment will continue to increase in months ahead. Rising unemployment figures, sometimes dismissed as a lagging indicator of economic trends, in fact are a strong leading indicator of social pressures that can drive governments to restrict or distort trade.
As was probably inevitable, economic crisis is driving governments to use loopholes in trade rules to introduce measures that restrict or distort trade. So far, there have been no blatant breaches of the rules, but these may be severely tested as unemployment continues to rise.
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