Trade is Falling, but Credit is not Due to Protectionism (yet)

Alarm bells are ringing. Trade is falling, and so we have rounded up the usual suspect -- import protection. Yet we really have not seen a sustained wave of protection so far, only a wave of anxiety. What we have seen is a real collapse in trade volumes, caused by a mix of falling demand, buyer uncertainty, and an apparent lack of export credits. It is striking that in recent revisions to U.S. GDP statistics for the end of 2008, it now appears that U.S. real exports fell 23.6 percent in the last quarter of 2008, while real imports fell 16.0 percent.

The drop in world trade is very real. The jury is out on the cause. How deep is the collapse? According to Wharton, the Baltic Dsy Index for shipping prices is down 90% from its May 2008 peak. In addition, there is evidence that perhaps half the global shipping fleet is idle. This is the mirror to falling domestic economic activity across the globe. Import protection certainly will not help. However, we need to devote energy to a better understanding of what has driven the collapse so far if we want to address the issue. Credit may be a big part of the picture. Apparently, carmakers in Japan are unable to get loans for their American customers, while exporters in a range of industries complain that lack of credit makes international shipments almost impossible.

References
Countries Stepping in to Finance Export Trade, New York Times, 3 March 2009.
Trade Wars: Will Protectionism Win out over Recovery?, Wharton Knowledge, 18 February 2009.