Trade Turbulence

• Author: Cristina Constantinescu, Aaditya Mattoo, and Michele Ruta

Trade Turbulence Finance & Development, March 2016, Vol. 53, No. 1

Cristina Constantinescu, Aaditya Mattoo, and Michele Ruta

China’s transition to a new growth path is contributing to trade volatility today and will shape trade opportunities tomorrow

Global trade has been a puzzle lately. In the 2000s, and especially after the Great Recession, trade growth has been persistently sluggish relative to GDP. And 2015 appears to have added a new dimension: volatility. Available data indicate that global trade contracted sharply in the first half of the year before beginning to grow again, albeit slowly.

In a previous article (“Slow Trade,” in the December 2014 F&D), we examined the cyclical and structural factors behind the global trade slowdown: weak demand, maturing value chains, and slower trade liberalization than in the 1990s. These forces are all still at work and contributed to the weak growth of world trade in 2015.

The trade fluctuations in 2015 may reflect turbulence as China adjusts to a new, slower growth path that is less dependent on investment and industrial production. China’s transition has strikingly different implications for countries depending on their main exports. Some of these effects are temporary; others are more structural. Manufacturers (especially in east Asia) suffered significant declines in export quantities but are now recovering; commodity producers were hurt primarily by lower export prices, which persist; and services exporters have benefited in a way that could presage future opportunities.

A most peculiar year After a period of low but fairly consistent trade growth, preliminary data for 2015 show a sudden contraction in trade volume of about 3 percent quarter over quarter in the first half of the year (see Chart 1). In the third quarter of 2015, growth appears to be positive again but weaker than in the second half of 2014. The contraction and partial rebound were concentrated in emerging market economies.

Emerging Asia, which accounts for more than a quarter of world trade, seems to have been the epicenter of the 2015 trade downturn and incipient rebound. According to preliminary figures, in the first half of 2015 emerging Asia’s imports dropped by 10 percent, accounting for nearly 90 percent of the contraction in world import volumes. China alone saw a contraction in import volumes of 15 percent and was responsible for more than half of the contraction in world imports (see Chart 2). The reversal of...