Open Markets Would Support Rebound in Trade in 2010

Since May, global commerce has reversed its dramatic plunge, shadowing the hesitant global recovery-but it has a long way to go before it returns to pre-crisis levels (see Chart 1).

"While trade appears to be rebounding on the coat tails of the economic upturn for now, policymakers need to resist protectionist pressures to guarantee a durable trade revival," said Christian Henn of the IMF.

"In addition, if nations could come to an agreement and conclude the Doha trade talks, then the resulting reduction in trade barriers and increased security for traders and investors could provide a positive impulse for trade for years to come," added Henn, an economist with the IMF’s Strategy, Policy, and Review Department.

Impact of stimulus measures on trade

Underlining the need to boost trade by concluding Doha, some analysts suggest the present rebound in trade may be the result of temporary stimulus measures. In the U.S. for example, fiscal stimulus amounted to over $780 billion and the Federal Reserve has reduced short-term interest rates close to zero. Globally, these and similar measures have boosted demand. One example is the "cash for clunkers" scheme-a $3 billion federally-funded measure that allowed consumers to trade in their old vehicles in return for subsidized purchases of new, more fuel-efficient cars. Other countries, including in Europe, have implemented similar programs.

"The danger is that car imports may return to depressed levels because what might have happened is that demand has simply been brought forward," said Henn, with owners replacing vehicles in 2009, that they might otherwise have replaced in 2010.

Unprecedented drop in trade values

Global trade collapsed in late 2008 and that contraction continued into the first quarter of 2009. Although trade tends to decline more than overall economic activity during downturns, the scale of the drop during this most recent recession was unprecedented. Trade volume declined by 18 percent and there was a 30 percent drop in trade values.

The nature of global trade means economic downturns are now magnified in the trade sector. Goods are traded many times along global supply chains, crossing many national borders before reaching the end consumer. So, products and their components add to trade volumes and values several times...