All Around the World, Trade Is Shrinking

All Around the World, Trade Is Shrinking
By FLOYD NORRIS
Published: February 27, 2009

The world trading system, whose growth was deemed an inevitable part of globalization only a year ago, is now shrinking rapidly.

Falling Exports

Japan, a country built in large part on exports, reported this week that its exports in January were worth $47.2 billion, the lowest monthly total in more than four years and down 34 percent from the same month a year ago.

Even in the global recession of the 1970s, Japanese exports never dropped that fast.

Most major European countries have not reported on January trade as yet, and the United States figures will not be out until March 13. But the rapid fall in trade has been experienced in virtually every country that has reported figures for January, as is shown in the accompanying graphs.

A year ago, businesses in many developing countries were confident that they could ride out an American recession, if need be, without major problems. Not only were other industrialized countries still growing, but the volume of trade was growing between developing countries, and there seemed to be little reason that would suffer.

Nonetheless, that is happening, perhaps because much of that trade was in items destined to be sent on to industrialized markets after further work. China’s overall exports were down 17 percent in January compared with a year ago, even though exports to Japan and the United States were off by 10 percent or less. Shipments to other Asian countries were off by much more, including a drop of 29 percent in exports to South Korea.

Chinese shipments to India were growing at an annual rate of more than 50 percent as recently as last summer. But in January, they declined by 18 percent.

The 17 percent drop for overall Chinese exports, while large, is still modest compared with the declines being felt by other developing economies. The three largest economies in South America — Argentina, Brazil and Chile — reported declines of 27 to 42 percent. Exports from Taiwan were off 46 percent, and those from Singapore fell by 41 percent.

The shrinkage of world trade may continue for some time, as recession-induced falls in demand are intensified by protectionist policies aimed at shoring up local industries. Developing countries without large foreign currency reserves may also be hurt by a drying up of credit to finance investment and trade.

China is trying to offset the impact of the world recession with a broad stimulus program aimed at increasing local demand for products. But that option is not available for many countries, which do not have large foreign currency reserves and will take in less in taxes as unemployment rises amid factory layoffs.

Floyd Norris’s blog on finance and economics is at nytimes.com/norris.

http://www.nytimes.com/2009/02/28/business/economy/28charts.html?ref=worldbusiness