The collapse of global trade, murky protectionism, and the crisis:
The collapse of global trade, murky protectionism, and the crisis:
The collapse of global trade, murky protectionism, and the crisis:
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9. <strong>The</strong> <strong>collapse</strong> <strong>of</strong> <strong>global</strong> <strong>trade</strong>: <strong>the</strong> role <strong>of</strong><br />
vertical specialisation<br />
Kei-Mu Yi<br />
Philadelphia Federal Reserve Bank<br />
Since last September, <strong>the</strong> world has seen a stunning <strong>collapse</strong> in <strong>global</strong> <strong>trade</strong>.<br />
According to <strong>the</strong> IMF, <strong>the</strong> value <strong>of</strong> world merch<strong>and</strong>ise exports fell at an annualised<br />
rate <strong>of</strong> about 40% in <strong>the</strong> three months ending last November. <strong>The</strong> numbers since<br />
October are particularly shocking. Figure 1 shows <strong>the</strong> decline in exports for <strong>the</strong><br />
world's three largest exporters <strong>and</strong> South Korea. In <strong>the</strong> US, real merch<strong>and</strong>ise exports<br />
fell at an annualised rate <strong>of</strong> 43% between October <strong>and</strong> December, for example. 14<br />
(Hereafter, "exports" refers to merch<strong>and</strong>ise exports.)<br />
Figure 1 Collapse in <strong>trade</strong><br />
Figure 1: Collapse in Trade<br />
Change in Merch<strong>and</strong>ise Exports (seasonally adjusted at annual rat es)<br />
Percent U.S. Germany Germany<br />
China South Korea<br />
Percent<br />
10/08-12/08<br />
10/08-12/08<br />
2008Q3 to 2008Q4 2008Q3 to 2008Q4<br />
Real<br />
Nominal<br />
Real<br />
Nominal $<br />
0<br />
-20<br />
-40<br />
-60<br />
-80<br />
-100<br />
Sources US: BEA; Germany; Statistiches Bundesamt Deutschl<strong>and</strong>; Ch ina: Goldman Sachs; South Korea: Goldman Sachs<br />
Source: US; BEA; Germany: Statistiches Bundesamt Deutschl<strong>and</strong>; China: Goldman Sachs; South Korea:<br />
Goldman Sachs<br />
This <strong>collapse</strong> has spared no country that is a part <strong>of</strong> <strong>the</strong> <strong>global</strong> trading system. Even<br />
China has suffered. Real exports fell at an annual rate <strong>of</strong> 36.6% in 2008Q4. 15 Most <strong>of</strong><br />
<strong>the</strong> decline in shipments has been in manufacturing, as <strong>the</strong> chain-linked fence surrounding<br />
a presumably shuttered factory on <strong>the</strong> cover <strong>of</strong> <strong>the</strong> February 21st issue <strong>of</strong><br />
<strong>the</strong> Economist so aptly illustrates. In short, this <strong>collapse</strong> has been sudden, severe, <strong>and</strong><br />
synchronised.<br />
14 <strong>The</strong> decline in real US exports in 2008Q4 is almost three st<strong>and</strong>ard deviations from <strong>the</strong> mean real<br />
export growth rate since 1973Q1.<br />
15 Owing to <strong>the</strong> sharp decline in oil prices in <strong>the</strong> second half <strong>of</strong> 2008, <strong>the</strong> decline in <strong>trade</strong> values overstates<br />
<strong>the</strong> decline in <strong>trade</strong> volumes. Evidence from several countries suggests that <strong>the</strong> decline in volumes<br />
is about one-half <strong>of</strong> <strong>the</strong> decline in values.<br />
45
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