How goes the global economic revival?
Monday, August 31, 2009 at 12:03AM BRIEFING: "World trade: Unpredictable tides; World trade is no longer collapsing and fears of rampant protectionism have not been realized. Even so, the way to revival looks far from smooth," The Economist, 25 July 2009.
Cool stats from Douglas Irwin of Dartmouth: because of global supply chains, trade rises and falls on GDP with more vehemence than in the past. In the 1960s and 1970s, a 1% rise in GDP could boost trade 2%, but nowadays it's more like 3-4 percent. Ditto with declines, naturally, but even more so in magnitude.
Two reasons account for the worse downside potential: destocking (inventories are run down) and trade protectionism, and the gist of this article is that it looks like destocking is the main culprit in this recession, not trade protectionism, because of the timing of the drop and the recovery. "Differences in the trends of goods and services also support the destocking thesis."
Yes, there has been protectionism and buy-local provisions, but they are balanced by competing liberalization strategies in countries from Australia and China to Ecuador and Paraguay. And the range of the protectionist measures is narrow, affecting only about ¬Ω of 1 percent of G20 imports.
What needs to come next? Return to the Doha Round.
Take-away for me: the de-globalization thesis is proving to be a weak descriptor of what's going on. We are simply witnessing what a truly global biz cycle looks like on the downswing.
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