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USA Today: Formerly Soaring Global Trade Suddenly Comes to a Halt

Author: David J. Lynch
December 29, 2008


The unstoppable force has stopped.

With economies in the United States, Europe and Japan slowing simultaneously, the World Bank says that global trade will shrink next year by more than 2%. That will mark the first time in more than a quarter century that the seemingly inexorable tide of globalization will be in retreat.

"Trade tends to be extra responsive to changes in income. When the world economy contracts, trade contracts even more rapidly," says economic historian Douglas Irwin of Dartmouth College.

The trade slump is both symptom and cause of the current global economic distress. For the U.S. economy, which just a few months ago was getting almost all of its forward momentum from net exports, "Trade will be a substantial drag on ... growth," Ian Shepherdson, chief economist of High Frequency Economics, told clients in a recent research note.

Compounding the recessionary gloom, trade is being choked by the credit crunch, which is drying up routine export financing. Entering 2009, the open trading system that has delivered low-cost goods to American consumers while lifting tens of millions of people in developing countries out of poverty faces the danger of protectionism in countries such as China, Russia, France and, potentially, the U.S.



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