|Global trade fell by 12.5% in 2009. Several factors explain this fall: the collapse in demand, the drying up of trade finance, a larger fall in demand for highly traded goods (such as machinery and transport equipment) relative to less traded goods and services, and the vertically integrated nature of global supply chains.|
Early resort to protectionist measures has been relatively muted and does not play a significant part in explaining the fall in trade – only about 1% of world imports were affected by new trade restricting measures. The rapid and coordinated G20 response to ensure adequate trade finance was available for viable transactions seems to have been effective.
Given their sheer size, stimulus measures taken to rescue sectors of systemic importance (such as banking) or to preserve jobs (as in the automobile industries) or to stimulate growth (such as consumption tax reductions) or “buy national” measures may be more significant in terms of their potential impact on trade than direct trade policy measures.
But dollar for dollar, direct trade restricting measures have the most strongly negative impacts on both trade and growth: simulations suggest a US $1 increase in tariff revenues results in a $2.16 drop in world exports and a $0.73 drop in world income. Simulations also suggest that $1 of stimulus spending behind the border can increase a country’s own GDP by $0.64 on average while world trade could increase by $0.08, but the effects on the real GDP of other economies are mixed.
These estimated overall impacts depend critically on the nature of the stimulus. Stimulus measures that discriminate between domestic and foreign goods and firms and sector specific measures are clearly less effective. Measures that are most supportive of both trade and growth are non-discriminatory demand stimulus and labour support. Coordination of stimulus measures ensures that benefits are larger and more widely shared.
Open markets and the restoration of a level playing field will be a necessary condition for a sustained recovery; this means addressing policies with both direct and indirect impacts on trade.
More detailed analysis on this subject is available in the report:
Trade, Policy and the Economic Crisis (pdf, 318 KB)