PrintPrint CiteCite
Style: MLAAPAChicago Close


Why Trade Has Survived the Crisis

Author: Jagdish N. Bhagwati
February 23, 2011
American Academy of Arts & Sciences


The current crisis is twofold: it affects Wall Street and Main Street — that is, both finance and the real economy. It has also been accompanied by a sharp decline in trade. The reasons for this decline — manifested not only in absolute trade volumes but also in the decline of trade to national income (GNP) — involve factors other than protectionism, which has been held at bay in several ways. This fact makes Niall Ferguson's pessimism seem alarmist.

Given that the ratio of trade to GNP rose strikingly in the decades of growing incomes prior to the crisis, one might expect that it would decrease during a recession in which incomes and consumers demand are on the decline. There are two reasons that explain this reverse phenomenon. First, product components increasingly are outsourced to other parts of the world and then assembled in one place. Thus, even if the value of the final product changes little, the trade in components needed to manufacture that product will rise.

View full text of article.

More on This Topic


Trading in Hate

Author: Jagdish N. Bhagwati
Project Syndicate

Jagdish Bhagwati faults the Obama administration and the Democratic Party for fostering anti-Indian sentiment with their protectionist rhetoric.