01.30.09
Sharp Drop In International Trade – Accelerated by Credit Crunch
The New York Times ran on January 16 an analysis of the dramatic drop in international trade since last summer. Virtually every major economy has suffered a drop. (See this graphic which sums it up quite nicely). There has been undoubtedly a reduction in demand as economies turn into recession. The countries that pursued export-led economic strategies have paid the heaviest price — China’s exports to the US were down 3% as US retailers cut back orders sharply for the Christmas season. Again the New York Times ran a good analysis on January 21 and the misery is felt even in low wage countries like Indonesia.
Another reason was the sharp reduction in credit. With the collapse of many major creditors and the remainder becoming extremely skittish about lending, trade has been hit particularly hard. Banks have cash on hand and even guarantees such as from the US EXIM Bank but still there is a reluctance to lend. The new O’Bama administration, in concert with the leaders of other major industrialized nations, needs to add trade finance to the list of areas where banks need to be nudged.
One of the features of the Great Depression brought on by protectionism (Smoot Hawley Act in the US) was the dramatic decline in trade volume. The lack of credit can have the same effect. The world economies cannot recover without adequate trade finance facilities.
It’s going to be a difficult New Year. Send me your thoughts on how international business can cope in the recession.
Gung Hay Fat Choy!
