GANGULI-GIC_Sep18_2009_Ganguli

Global Trade Today Presented by: Bodhi Ganguli, Economist

September 18, 2009

The Crisis and Its Aftermath

Global Trade Collapsed Much Faster Than GDP % change year ago 5 Merchandise exports (R)

4 3 2 1

Real GDP (L)

0 -1 -2

Sources: WTO, Moody’s Economy.com

-3 -4 06

07

08

30 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30 -35

09 3

Causes and Effects

Factors Behind the Record Contraction

Massive drop in demand caused by synchronized global downturn.

Drying up of trade finance.

Increasing presence of global supply chains.

Increasing (threat of) protectionist measures.

5

Effects Have Been Severe

WTO expects global exports to drop by 9-10% in volume terms in 2009, biggest contraction since the second World War (10% in developed countries, 2-3% in developing countries).

FDI is likely to drop more than 30% in 2009.

Many thousands of trade related jobs have been lost worldwide, raising unemployment rates.

Drastic drop in industrial production around the globe, contributing to synchronized slowdown in GDP growth.

6

The Downturn Was Highly Synchronized Recovery

18

Europe

Argentina

South Africa

Asia

Annualized Growth Rate Most Recent Quarter (y-axis)

China

14

Americas

Indonesia

10

Hungary

Canada

France -11

Expansion

2008Q2

-9

-7

-5

-3

6

Mexico

U.S.

Russia

Australia

-6

1

Japan

3

Germany

5 U.K.

Spain

7 New Zealand

9

11

Sweden Singapore

-10 -14 -18

Contracting

India Brazil South Korea

2

-1 -2 Italy

Ireland

Greece Chile

-22 % Change Year-Ago (x-axis)

Note: Countries below the diagonal line are currently growing more slowly than a year ago.

All data for Q2-2008 and Q1-2009 unless indicated otherwise.

Struggling NOTE: Size reflects relative total employment

7

All Major Economies Affected to Some Extent Recovery

Expansion

2009Q1 18

Europe 14

Americas Asia

10

Indonesia

Annualized Growth Rate Most Recent Quarter (y-axis)

6

New Zealand

South Korea -11

-9

-7

-5

Sweden

France

U.S

Japan Singapore Hungary

Australia 2

-1 -2

Brazil -6 Canada

Ireland Italy

-3

Spain United Kingdom

Germany

India

-10

Argentina 1

Contracting

3 Chile

5

7

9

11

Greece Russia South Africa

-14 -18

Mexico

China

-22 % Change Year-Ago (x-axis)

Note: Countries below the diagonal line are currently growing more slowly than a year ago.

All data for Q2-2008 and Q1-2009 unless indicated otherwise.

Struggling NOTE: Size reflects relative total employment

8

Not Out of the Woods Yet 10

13400 IATA air freight, % change year ago (L)

11800

5

10200

0

8600

-5

7000 -10

5400

-15

3800

Baltic Dry Index (R)

-20 -25

2200 Source: Bloomberg

06

07

600 08

09 9

Protectionism

A Potential Impediment to Recovery

„

„

„

The crisis has put protectionism back on the policy agenda.

Protectionism has been muted compared with the early 1980s or post-1929.

But despite pledging to maintain open trade and refrain from new barriers to trade, there has been a measurable increase in protectionist measures by G20 members.

11

The New Face of Protectionism

„

„

„

Post crisis, G20 members have increasingly agreed to domestic industry demand for protection from import competition.

12.1% y/y increase* in initiated investigations in the second quarter under trade remedy laws.

Members have preferred trade remedy policy instruments rather than tariffs, namely, antidumping, safeguards and countervailing duties (anti-subsidy).

*Source: Global Antidumping Database 12

Use of the “Safeguard� Policy Has Spiked in 2009 Safeguard initiations by WTO members, China most targeted 40 35

Source: Global Antidumping Database

30

Projected

25 20 15 10 5 0 95

96

97

98

99

00

01

02

03

04

05

06

07

08

09 13

Antidumping Remains Popular AD use by WTO members, India top user for last 10 years 400 350

Source: WTO

Initiations (3,427) Measures (2,190)

300 250 200 150 100 50 0 95

96

97

98

99

00

01

02

03

04

05

06

07

08 14

Case Study: Trade Effects of Indian AD Actions

Indian AD is moderately “effective” in limiting import competition to domestic traders*.

In the first 3 years after a case is filed, imports from subject countries fall by as much as 23%.

Some “trade diversion” does occur to nonsubject countries. But overall imports still fall in response to Indian AD legislation.

*Ganguli, Bodhi. “The Trade Effects of Indian Antidumping Actions”.

Review of International Economics, Volume 16(5), November 2008 15

Looking Forward

Policy Recommendations—Consensus Is the Key

Adopt and implement improved global financial governance at G20 summit in Pittsburgh to boost availability of trade finance.

Strengthen institutional monitoring, review and notification of new trade restrictions.

Roll back temporary protectionist responses to the crisis (including “buy national” clauses).

Signal commitment to keep trade and investment flowing by concluding Doha Round.

17

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