What Prompted the Global Trade Slowdown?
The global economy is slowly recovering from the financial crisis of 2008–2009, but performance in global trade has been disappointing.
With the exception of a 13 percent rebound in 2010, trade growth slowed from a pre-crisis average of seven percent per year to an average 3.4 percent between 2012 and 2014. Merchandise trade as a share of global output rose from 23 percent in 1982 to 44 percent in 2007, and has yet to recover to 2007 levels.
A recently-released report from the Center for Strategic and International Studies, a Washington think tank, considers explanations for the post-crisis slowdown and what governments can do about it.
Weak demand has been identified as a major factor in the dramatic trade collapse in 2009. “Some studies report that this factor alone accounted for up to 90 percent of the contraction,” according to the CSIS report.
Weak demand is still pronounced in the United States and Europe, which account for 65 percent of global import demand.
A World Bank analysis shows that trade growth has not matched GDP growth in the post-crisis years because the maturing of global value chains means that gains attributable to advances in technology have plateaued. Other researchers conclude that “at a global level the composition of GDP may be shifting away from import-intensive components of demand such as investment, and toward components with a higher degree of nontraded content, such as consumption or government spending…. Post-crisis, weak demand coupled with poor investment performance would explain part of the sluggishness.”
Weakness in trade finance may be another factor. Trade finance has become more expensive and less available.
Rising trade protection also contributed to the slowdown. “If policy improvements during the pre-crisis era helped accelerate trade growth,” said the report, “policy reversals…would be a factor in a slowdown.”
Protectionism has been on the rise post-2009. A WTO report indicates that in the year ending May 2014, G20 counties members put 228 new trade-restrictive measures in place, amounting to 1,000 new protectionist measures since 2010. “While many of these measures were meant to be temporary,” noted the report, “the vast majority of them have remained in place.”
The CSIS analysis points to two key areas for attention by policymakers. Actions to improve economic growth are essential to improving aggregate demand, which remains the principal lever for trade growth, said the report.
The United States and other key economies need to return to a trade-liberalizing agenda. “The action by the U.S. Congress earlier this year to renew Trade Promotion Authority is an encouraging start,” said the report, “but the key next step is to conclude and implement trade-expanding agreements like the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership.”