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Trade and the Crisis
Jim Rollo
EPRC University of Strathclyde 20
May 2009
Jim Rollo, Sussex European Institute
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Trade Falling off a cliff since last end of
2008
The World Bank on December 9th 2008 forecast a 2.1% fall in world trade in
2009, after an overall 6.2% rise in 2008.

The IMF updated its WEO forecasts and suggested that world trade and
production shrank by 45% and 15% annualised in the 4th quarter of 2008

Data for the month of December suggest an accelerating decline, with monthly
drops in exports reported by China (-2.8%) the US (-6%) and the UK (-3.7%) by
value;

Japan reported a 44% fall in exports year on year in January 2009 following a
fall of 35% in December 2008

China reported 17.5% fall in exports YoY and a 42% fall in imports in January
(latter no doubt affected by commodity price falls since January 2008)

In January 2009 Pascal Lamy reported to the WTO membership that even
though year on year 2008 trade was up on 2007, there had been a worldwide
decline in trade in November.

By April IMF WEO sees World trade down 18% on a year earlier in January and
Rollo, Sussex European Institute
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forecast volume down 9% forJim
2009
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Industrial Production
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Advanced
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CPB trade
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Trade value3
Emerging
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Jim Rollo, Sussex European Institute
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protectionism not the key problem- yet

This is the effect of the credit crunch turning into a fall
in demand

Protectionism in rhetoric (Sarkozy/Berlusconi)

Or promised – Buy American

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BUT support for financial firms and autos sector
worldwide will require careful management as (if) we
emerge from the slump if global competition not to be
impaired
But fiscal stimulus likely to involve subsidy
And exchange rate falls – $ and notably £ seen by
some as 'competitive
devaluation but stability of $
Jim Rollo, Sussex European Institute
remnibiexchange rate not consistent with this
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Jim Rollo, Sussex European Institute
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Dangers of increased protectionism
real
Trade a bellwether and potential intensifier of the
recession

In great depression second round of trade
contraction led by beggar thy neighbour policies

Danger of protectionist response if effects of
stimulus especially in US/UK leaks abroad
because net exporters do not expand domestic
demand sufficiently


Potential for WTO legal protectionism significant
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Short term
What we need to do

Act to get global demand going again

Find funds for trade credit


needs a concerted and coordinated and further
monetary and fiscal stimulus – de facto that means ex
ante or ex post a realignment of exchange rates and a
consequent fall in net exports in the surplus countries
and an increase in the deficit countries as surplus
countries take on more of the burden of sustaining
global demand
That also means the beginning of a realignment of
power and responsibility in the management of the
world economy Jim Rollo, Sussex European Institute
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What do we need to do 2

On trade policy

First do no harm so public and high profile G20 recommitment to a freeze on new protectionist trade
policy measures including – explicitly - WTO legal
(November rhetoric on trade was unclear)

Second send trade ministers back to Geneva to
finish DDA – if necessary take their passports away
and lock them in a room until they agree


Benefits of DDA deal look small (Though insiders say that
is a mistake)and are distant
Costs of no deal catastrophic signal of the failure of
global policy coordination – cannot even complete a
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weak agreement after a 7 year negotiation
What happened at G20




Up to $750bn for IMF
$100bn for MDBs
Fiscal stimulus packages – estimated at 2% of GDP in
2009 and 0.9% in 2010 by latest WEO
On trade




Commitment to no increased protectionism extended to end
2010 (but weasel words on WTO inconsistent measures)
Notify WTO of any protectionist measures
Provide $250bn for trade Finance
Overall not bad - if they mean it and iff they sustain
fiscal stimulus among the net exporters into 2010
Jim Rollo, Sussex European Institute
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The dangers to the export led
growth model of development



Export led growth has propelled billions out of
post conflict devastation and poverty by
generating historically unprecedented rates of
growth
It has also & however contributed to major
instabilities in the global economy mainly via
persistent undervalued exchange rates and
consequent imbalances – Germany and Bretton
Woods, Japan and the Plaza/Louvre accords,
east Asia and the current crisis.
Net importers toJimblame
too Institute
but creditors cannot10
Rollo, Sussex European
walk away from their responsibility
A worst case scenario

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This is the deepest crisis so far
The threat of protectionism and competitive
devaluations to boost domestic production in
net deficit countries still potential but real
No consumer(s) of last resort function
Threatens a structural slow down in world trade
and output growth
Leaves the likely increase of 700 million young
people to global labour market at risk of greater
poverty
Jim Rollo, Sussex European Institute
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A new Bretton Woods



Need global rules or a hegemon – Bretton
woods had both and took a decade from the
bottom of the depression and a world war to
agree
New system cannot just be an escape
mechanism for the US
It must have effective rules and legitimacy and
a new G4/5 (US, China, Japan, Eurozone +
India(?)) – no major economy can be exempt
from monetary and fiscal disciplines if the
system is to resume
business
Jim Rollo, Sussex
European Institute as usual
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Extract from Table 11 of IMF
Regional outlook for Europe
Jim Rollo, Sussex European Institute
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