On the occasion of rare earths, 2 world trade reminders

On the occasion of USA, EU and Japan jointly making a complaint to the WTO Trade re China limits on export of "rare earths":

Reminder (1): WTO Doha failed partly because some countries wanted to have the right to restrict export of basic foods in crisis cases

Trade Reminder (2): WTO Doha also failed because some developing countries didi not want to open their markets to US & EU industrial products (and compete with theirs).


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World (econ/trade) Cup news and dynamics!

""We are in trade war. But today we’re fighting back,” said Democratic Senator Sherrod Brown" after the US Senate passed a "China currency manipulation" bill (See "Senate passes China currency manipulation bill" in The Raw Story, October 11, 2011).

1) "War" is a heavy/loaded word, that I would not use, but Senator Brown is right in that globalisation has turned into a fierce economic/trade World Cup instead of a cooperation "game" of nations. So what was billed as a world championship primarily between multinational corporations (and "local"/national champions (companies)) has gained a second level, the economic competition (World Cup) between countries. With exports (goods and increasingly services), investment, etc as its tools (instead of eg a ball, see football). Countries are ranked by various sources (including the WEF's Global Competitiveness Report, the rating agencies, etc). Based on GNP/GDP, trade or CA balances, etc. The genre of the game is mostly competitive, and mostly fierce, not cooperative.

After the 2008 US subprime driven crisis, some spoke of "over-dependency on exports". Others spoke of "over-dependency on the financial industry" (eg of the UK/London, by a now former German Minister). An equivalent to the US over-dependency on oil that even GW Bush Jr. spoke of?

In more recent months, the US has accused Germany of exporting too much and consuming tooo little! We are also reminded that many economists especially of past times have argued that trade is supposed to be in near balance and that excessive trade surpluses are as damaging to the world economic systemics as trade deficits are.http://www.blogger.com/img/blank.gif

Some have even argued that "good" domestic consumers are a precious asset for a country (eg the US, consumption is 2/3 of the economy). Of course it helps when the market is big enough (eg the US 300 million one) and realy internal and single (unlike the EU not that single after all Single Market and the Eurozone (330 million ie larger than the US in theory, but not as internal as the US in practice). See also my August 29, 2011 post: "Show me your consumers and then I will show you mine!"

2) Back to the bill that just passed in the US Senate, it is not active yet anyway. Merely passed in Senate. Not the GOP majority House of Reps, at least not yet. Normally pro-free trade USA (Bush even tried to create a Free Trade Area for the whole Americas (North, Central and South in Mar del Plata in mid-2000s) but did not inspire most other Americas countries, that are nevertheless into things like Mercosur and the evolving UNASUR, while NAFTA is not too big a success according to all 3 members, and the Democrats in the House and Senate had managed to stall the adoption of bilateral agreements that Bush had concluded) But with 2012 so close, will GOP stand on its pro "free trade" principles or take into account the electoral climate too? By the way, as far as I know, Obama wa never given "fast track" powers like the ones the Democrats led House and Senate had given Bush to negotiate the now shifted towards a "lite" version WTO Doha Round of trade talks.

And while WTO exists with its 150+ members, internationa trade is still not free (only more free than it was 20 or 30 years ago) and according to many studies that there too many "hidden"/covert barriers/protectionist defenses employed by countries (eg many G20 ones) that otherwise partake in the G20 and others' public rhetoric pro-free trade!

4) I have been pondering (and blogging) as per how long before USA and/or EU realise that for them WTO membership has more restrictions than opportunities (& that they can be better served via bilateral agreements between countries, not even free trade areas)?

5) I am not even sure how compatible the US "China currency manipulation" bill is with WTO rules! Could US measures against China activated via this bill lead to China complaint to the WTO that currency manipulation is not covered by WTO rules (and thus not forbidden) and that thus the US measures justify WTO approved counter-measures by China? Not an expert, but wondering.

6) Of course, nowadays, there are only 2 economic super-powers in the world today: China and USA. Russia could be added as a +1 (in a G2+1 instead of G7+1 configuration). The U is not an world economic superpower, unless it unites politically. And the UK, France and Italy have long lost real "G" status (eg G7).

What about Germany, the ex-No1 exporter in the world (now it is China)? Well, Germany is economic/trade champion only in a EU league, not the world league, since most of its exports stay in the EU! Plus Germany (unlike USA, China, and potentially India and Russia) has too small of an internal market to "survive" bumps. That is why it needs EU/Euro.

7) Daring to be different. Not sure how Russia's plans to be a world power via oil and natura gas are working out (calls for a return to the USSR's military superpower status would suggest that the oil and natural gas strategies are not working too well), but Russia is clever in that it puts extra criteria for foreign state (vs private) investments in Russia. And no WTO membership (eve if it is aid to be vetoed by Georgia). Why? Because while USA and Germany had to offer people rebates as a stimulus for their car industries but to be consistent with WTO rules they had to make the rebates available to buyers of made in WTO inports too, Russia, not being a member of WTO merely hiked the tarrifs of car imports!

To be continued in a market near you and around the world!

Time to rethink global trade (and save the Euro & the US economy as well as Earth)?

Whereas more and more ("national") economies are becoming Services economies (ie with Services yielding 65-70% or even more of GDP) most of international trade is still in manufactured goods. So whereas "intellectual products" such as film, TV content, music, even porno (by the way, its main global "manufacturing" cluster is in California too, much like the Silicon Valley and Hollywood) and Services such as finance, telecoms, insurance, and of course tourism, provide valuable export revenue to some economies, the world superpowers of exports are driven by manufactured goods!

Be it "complex products", for consumer or business use, as is the purported German key to exporting success, or innovative tech products (America's niche) or low price - low quality manufactured goods (as is the case for China, at least for now, will it follow Japan's example and upgrade, gradually, into quality products?), manufactured goods are the bread and butter of trade. Portugal, Spain, Greece, Italy and others are being advised to adopt the German approach to manufacturing quality/complex goods as a way of solving their competitiveness and balance of payments issues!

Side Note: But, as I have asked in previous posts (see eg here), what would happen to the world market prices for complex goods if the PIIGS and other Eurozone members decide to follow Germany's example (thus increasing supply of such goods in the Eurozone, the EU and globally)?
So, manufactured goods of all origins, sizes, qualities, prices, etc are travelling around our planet everyday in the process of what we call global or world trade, the No. 1 world sport of our era, more crucial than football (aka soccer), basketball, even rugby or cricket! The one that makes or breaks economies as we are seeing in recent months (hence a "Rollerball" of sorts, if you recall the movie, especially the original, starring James Caan).

But does all this trade (and transport) "jazz" make sense? In addition to burdening the planet's environment?

Some would say that it is transport that has become too cheap in recent decades, thus allowing for "irrational" transport and trade to occur, in the name of Ricardo (David (see Wikipedia) not Ricky). But cheap transport is not necessarily the problem, is it, unless of course one believes that markets and the prices they set provide the best allocation of resources, but I am not a believer in that worldview. Are you?

So should there be a central planning body, global, that determines which manufactured products should have a "right" to be transported across the "7 seas" (via air, sea, etc or comb0 thereof) ie a right to burden the planet's eco-system (eco not econ; well that one too, actually)? Does one have to believe in global warming to agree that shipping of many types of goods across thousands of miles/kms or nautical miles is simply irrational use of resources?

No, I am not proposing the establishment of such a central trade/transport licensing body. Of course not. Unless China takes over the whole world, of course. In which case it won't matter what I or you think, anyway!

A few years ago, a few well known leaders, 2 from South America and 2 from Europe, if memory serves me right, had the brilliant idea to strap a "globalisation levy" on (believe it or not) passenger air transport!!! The European Commission's Services were even forced to look into it. Why on earth charge the movement of people instead of goods? To promote tele-conferencing? Or virtual sales aka e-commerce? To bring the travelling salesmen a break (see the movie Up In the Air with George Clooney as an excellent case study)? Not likely!

But the problem still exists and calls for a solution.

End of Part 1

(Not to be completed over 6 seasons)

Read next part

World systemics: Import this!

After reading the WSJ article: "Germans, Prizing Virtues of Saving, Find Euro Bailouts Hard to Swallow", June 25, 2011, my brain was stimulated enough to make the following syllogisms:

Roughly speaking, it seems some people (eg Germans) are over-saving, some (eg Americans, Greeks, Irish, Portuguese, etc) are/were over-spending (consumer credit).

Some eg Germany, China, S. Korea, etc are over-exporting, others eg USA, Greece are/were under-exporting (or over-importing).

Please import these syllogisms and export your opinion:

Was Ricardo wrong?

Germany's competitiveness: Beyond myths and inside the systemics

On June 8, the German national statistics agency announced that in April (2011) German exports fell by 5.5% to 84.3bn euros compared with March 2011 (see eg BBCnews report).

The March 2011 German exports had been Euros 98.3bn which were:
1) +16% from March 2010
2) the highest monthly total since 1950 when record keeping began!

The April drop surprised analysts, according to the BBC. But it did not quite surprise me.

In my May 9 post, "German exports record high in March vs Euro/USD rate", I had wondered:

"But what was Euro/USD in March compared eg to last week (the week before "the weekend"? See a chart eg here and draw your own conclusions!"

The "here" was (and is) a EUR/USD Elliott Wave Analysis chart (May 9)(here is the latest one, June 6). They show that the price of the Euro vis-a-vis the USD not only had reached a "local" low in March 2011 but had been within the 1.35 - 1.30 USD per Euro range (roughly) from late 2010 until March 2011. One does not expect a country's exports to be correlated with the same month's currency value because after all, orders, especially international, do take some time, depending on the type of good or service (eg in tourism many bookings are made many months ahead).

But the fact that the Euro by March 2011 had been in a range lower than its local 1.5+ high that had been reached around Jan 2010 (then sliding from that 1.5+ high from roughly Jan 2010 to June 2010, when in reached a less than 1.2 "low", and the started to go up again), did pose some questions as to the factors/drivers behind the super duper German export record of March 2011.

Notably, after the March 2011 local low of approx. 1.3 USD per Euro, the Euro climbed somewhat steadily up to the 1.5 territory in the next 2+ months. Did that affect the April exports performance? That I do not know. Does someone? Feel free to comment!

In other words, German exports, which are said to be mostly manufactured "complex" goods, said to be mostly produced by sophisticated small and medium German manufacturing firms to quality levels that justify a higher price (be it due to "national" costs or the expensive Euro (successor of the expensive/hard DM or profit margin) in the world's markets was/is allegedly the "key" to Germany's export success (formerly No 1 in the world and now second only to China of the 1.3 billion people compared with 80+ million Germany).

Maybe it's my MIT education that taught me to ask questions such as "why" and "how" even for things that are pretty much taken as "facts of life" or "given" by many others, maybe it's my systemics analysis - operations research - decision science education as well as an MBA, but in any case, I was and still am eager to get to the bottom of the systemics of the German competitiveness model, beyond the myths and inside the mystique that surrounds them.

A myth that says that hard working Germans, working smart and with quality equipment and a knack for organisation and engineering, produce goods and achieve export power that the likes of Spain, Portugal, Ireland, Italy, Greece (aka PIIGS) and most of the other EUropean and other economies cannot (and should?) achieve!

Not being a believer in national stereotypes, but being a believer in systemics, I am willing to accept, after more research that there may be systemic conditions that render Germany a more competitive economy than eg the PIIGS (and if possible isolate and examine those conditions or, if you prefer, parameters or factors). But I need much more info and data than the ones offered by the analyses of German competitiveness that I have read so far. Feel free to recommend ones (via e-mail) if you are aware of.

One thing that IMO does not bode too well with the myth is the datum that 60% of German exports are to its EU Single Market partners. That means that the rest of the world, outside the EU, only buys 40% of Germany's exports. So 60% of these largely complex and 'expensive but worth it; manufactured goods are bought by a market of roughly 0.420 billion inhabitants, while the rest 40% by the rest 6.4 billion non-EU market of this planet!

And when at least 120 million of those 420 million (ie the PIIGS) are in some kind of austerity, hitting a record month in exports (March 2011) seems quite unsustainable unless there are data that other markets (eg the developing BRIcs etc) are picking up the slack one expects from the "austeritised" PIIGS (and to some extent the rest of the Eurozone and the EU).

More on this in the near future as I will be trying to dig deeper and deeper into the system/model of German competitiveness.

For now, one last note:

I read a lot of commentators, some German, some other EUropean, some from other parts of the world, urging the PIIGS to become (in terms of economic modeling) more like Germany. My question is the following simple (and maybe dumb) one:

If all of the Eurozone moved from production (and export) of simple to complex goods a la Germany, then that would increase up to 300% the volume of such goods produced in the Eurozone (80 x 4 = 320) and 500% in the EU (90 x 6 = 480). Ie for each German complex good produced by Germany now, there would be 3 more of the same produced in the rest of the Eurozone and 2 more in the rest of the EU. Making the total volume of German type complex goods produced in the EU 6 times the existing one.

In such a case, what would be, via the "law" of supply and demand, the effect on the equilibrium price for German+rest EU "complex' goods? To use a Marketing term, if the rest of the economies of the Eurozone or the EU would produce German type of goods, then there would be cannibalisation in the (EU and world) markets. Leading of course to much lower prices for these goods. Food for thought, huh?

Global and EU systemics: Major systemic imbalances in urgent need of fixing!

I am not sure how the following model fits with traditional economic models (note: I am an MBA, decision scientist and a policy analyst, not an economist or financial analyst anyway) such as the capital - labour - land or the capital - labour - knowhow ones:

In "my" model, there are 4 factors: capital, goods, services and work. And IMO for a system, be it the EU or the USA or the world (globalisation) to work, these 4 factors must have more or less the same level of freedoms ("4 freedoms").

Also IMO, the current instabilities in the global and EU systemics are due to uneven levels of fredom between these 4 factors.

Capital has a very high level of freedom to move and relocate around the world. Capital movements have, realitively speaking, few restrictions, within the world and within the EU.

Goods have seen their freedom grow exponentially since GATT was founnded after WWII leading to the creation of the WTO in 1994. But still, the level of freedom of goods is nowwhere near "free trade". Many tariffs and quotas, especially the former exist even between the WTO membems (and within WTO rules). Even in the EU Single Market for goods, many problems still exist, especially for small firms.

Services at least the most tradeable ones, have been making progress but their freedom is nowhere similar to that of capital and goods. At WTO and at EU level. Eg in the EU many are in fear of the travelling plumber!

When it comes to work or the freedom of labour, then things are quite sad, especially at WTO/global level and even at the EU level many problems exist. Too many.

My thesis is that unless the level of freedom of all these 4 factors converges upwards, it will soon start to converge downwards (that applies to the global and to the EU "systems"). In goods, the by now admitted failure of the WTO to reach agreement in the Doha agenda, opting for an effort to conclude a lite or extra lite one instead, the backwards pressures can be seen. With a zero or low level of public debt being reconised as a key factor in sovereignty (due to the Euro crisis etc), the concept can easily be expanded to the trade balance and the CA balance. Already certain countries have been accused (by the US) of "exporting too much" (eg Germany and China). Movement of workers, free lancers and people is "near apartheid" level globally and be in for political asylum or so called economic immigration reasons, it is alas getting worse pretty much all over the world.

What is more, the economic globalisation, in the form of the freedoms of capital and trade, needs to be balanced, structurally by a global political and a global social pillar!

Else, it is structuraly unsound.

If there is no global polity (a world parliament and possibly government (eg for the WTO 153)), or at least continental-level polity, I would not exclude de-globalisation and either regionalisation or nationalisation/localisation of capital and goods freedoms (see eg "buy local" initiatives).

Or a system of 4-7 major global players (federal EU, USA, China, India plus Russia, Japan, Brazil (or UNASUR), see my recent relevant post).

It is in the good interest of capital and the finance world to encourage or at least not block the globalisation of the other factors and the creation of global political and social pillars.

That is maybe why, in a way, the financial markets seem to be pushing the EU or at least the Eurozone towards political union!!! Because a single currency and a single market need a single polity as foundation and the financial system may not be always responding to crises in rational ways, but its vision is as good as anyone's. And the prudent financiers IMO know that either the other factors gain more freedom or capital loses much of its own.

Plus, the business world, those who produce and deal in goods and services, have clear vision too. And to the extent that the finance world does not manage to be part of the solution to the imbalances, they will ally with the politicians and societies against them.

Not for the battle for midde earth though! Enough metaphorical headlines or slogans (overdone by media etc in recent months). What is going on is the world today is the ultimate real show, much more interesting and cruel than any fairy tale or show.

The humans will prevail, eventually, they always do. Ask the monarchs, the Romans, the Soviets, etc. The financial system is next, it seems, if, as a system, it does not read the signs of the times and listen to the prudent voices inside it.

"People in glass houses shouldn't throw stones" economics!

It has become 'people in glass houses shouldn't throw stones' global (and EU) economics (& politics & policies)!

Quote from Bernake's speech at ECB obviously does not refer only to China but FRG as well (among others):

"For large, systemically important countries with persistent current account surpluses, the pursuit of export-led growth cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account, ...."

IMO this analogically also applies to EU Single Market & Eurozone context as well: the implications of that strategy (by FRG) on stability of systemics with the EU Single Market and the Eurozone.

Of course if one can blame FRG over-exporting for SM & Eurozone imbalances, same can be said for low corporate tax regimes and other practices by other member states of the EU.

And if US authorities can be blamed re US subprime "manufacturing", European & others can also be for allowing over-purchase of those "products"!

Other analogies come to mind as well!e "manufacturing", European & others for allowing over-purchase of those "products"

So, IMO, it has become 'people in glass houses shouldn't throw stones' global (and EU) economics (& politics & policies)!

And the key governing dynamics: Oxymora!

A Global Polity for the Global Economy and the de-globalisation option

A "global" (or WTO-wide) Economy does not work properly & cannot be
sustained w/o a global (or WTO-wide) Polity.

That is source of current problems.

Other options include de-gobalisation (eg regionalisation, eg EU, ASEAN, Trans-Pacific Partnetship, Mercosur/USAN-UNASUR, African Union, ...) of global finance and even goods trade!

Goals or exports?

What is more important? The performance of a country's national soccer (football) team or of its economy?

Globalisation? What globalisation? More like a figment of imagination or at best, an impression!

The US, EU, Canada, Japan and 9 more are negotiating a controversial "ACTA" (google it). If one adds 27 EU, that still makes only 40 out of 153 WTO members Another WTO "fail"? Or is it another sign that globalisation is a figment of imagination and what actually exists is an unbalanced (eg no economic immigration freedom, ie freedom of movement of "human capital"), largely unpopular system? A system that has failed to capture the imagination of the average citizen of this planet as well as the micro firms (1-9 ppl) and SMEs? A state of being that promises much more than it actually delivers via so called "free trade" of goods (in reality, merely "more free" or "less unfree" than before), services (how many services, esp. those that concern the average person or company are actually trade-able) and capital (that issue deserves a separate post)?

It is no surprise IMO that Simon Evenett's Global Trade Alert, that records not that obvious forms of barriers and distortions (ie "sneaky" acts of protectionism) has found (see "Protectionism: Pantomime villain fails to materialise" in the FT, by Alan Beattie, June 25, 2010 http://bit.ly/aqZhyy) that since the first G20 crisis-related summit of November 2008 where 20+ governments declared their commitment to free trade etc etc, governments around the world have put in place not only 99 traditional restrictions such as anti-dumping and countervailing duties but 397 other new "sneaky" protectionist policy measures. The latest report of Global Trade Alert is coming out this week and should make very interesting and telling read. It would also be interesting to know how many and which types of protectionist measures have been put in place by the US and the EU as well as the BRICs and of course China and Japan!

IMO the bottom line is that in spite of rhetoric, media and other hype, etc, globalisation is not an accurate name for the process that has been going on since post WWII GATT and the establishment of the WTO in the 1990s. IMO real globalisation would be a great thing. But, much like the European Integration (or even worse, NAFTA), it would require a much more humanist, systemically balanced establishment of real freedoms for real companies and real people. The world breaking news, the Internet, e-commerce, the social media etc do give the impression of a globalised world. But it is largely, just that, an impression. Eg how many companies other than those based in North America and some European countries (eg UK) have truly been able to engage in world trade via e-commerce at a substantive level? What % of the world's SMEs and micros?

So, what globalisation? The fact that there are now global players from Japan and the BRICs next to the traditional football, sorry, I meant trade and economic, traditional powers, plus the fact that most countries do some exporting of goods, does not constitute globalisation. And while the US and the EU are largely finally coming to terms with the idea that they are Services economies, while, strangely most of their export trade is still in the minority of GDP "manufactured goods" category, while some, including the author of this post, are claiming that the US (and maybe the EU) should depend more and more on meta-industrial age "intellectual products" for their export revenues (because sweat shop high labor intensity low skill low pay jobs do not for a better future or quality of life make), and while it of course makes perfect sense that many in the EU and the US are upset about the initially secretive method of ACTA negotiations, one is IMO allowed to ask:

What globalisation are you talking about (or is it "globalization")?

Posted via email from nickpthinking

Beyond the national vs global debate

IMO globalization is not cutting it in its present version and that is largely the main cause of the re-focus on national levels in recent years. The same can be said of one of the main aspects of globalization, free trade. Having national leaders and other key figures make pro free trade and anti protectionism declarations, IMO, does nothing to address the systemics factors behind a) the protectionist and b) national focus dynamics of recent years. Free trade does produce extra world GDP but one has to consider and discuss who gets most share of that "added value" from trade and any other benefit of a global focus. And I re-iterate my view on the need to reconsider David Ricardo's "comparative advantage" theory, with relevance to modern systemics and dynamics.

On economic and political governance

Re all the economic governance "fashion" of recent months and weeks:

All policy issues have an economic dimension but no policy even econ has only an econ dimension 25 minutes ago via we

IMO economic policy decisions cannot be left to the "market" or supply and demand, they should not replace elected political governance.

For a market to be truly free it must also be "democratic" and rule of law does not mean rule of market rules or #economic theories.

Even common markets and free trade areas need political governance, IMO. Hence EEC Common Market naturally led towards EU Political Union.

IMO, we see the same thing happening with world free trade, ie for political governance to balance multilateral economic activity.

IMO all policy decisions must be approved by the people or their elected reps and economic, monetary and fiscal policies are no exception.

WTO: world trade volume +9.5% expected in 2010

According to WTO economists world trade is set to rebound in 2010 by growing at 9.5% (in volume), after a 12.2% contraction in the volume of global trade in 2009 (the largest such decline since World War II).

According to the WTO Director-General Pascal Lamy, “WTO rules and principles have assisted governments in keeping markets open and they now provide a platform from which trade can grow as the global economy improves. We see the light at the end of the tunnel and trade promises to be an important part of the recovery. But we must avoid derailing any economic revival through protectionism”.

According to the WTO press release (March 26):

Exports from developed economies are expected to increase by 7.5% in volume terms over the course of the year while shipments from the rest of the world (including developing economies and the Commonwealth of Independent States) should rise by around 11% as the world emerges from recession.

Measuring trade in volume terms provides a more reliable basis for annual comparisons since volume measurements are not distorted by changes in commodity prices or currency fluctuations, as they can be when trade is measured in dollars or other currencies.

According to the WTO, one positive development in 2009 was the absence of any major increase in trade barriers imposed by WTO members in response to the crisis. The number of trade-restricting measures applied by governments has actually declined in recent months. However, significant slack remains in the global economy, and unemployment is likely to remain high throughout 2010 in many countries. Persistent unemployment may intensify protectionist pressures, according to the WTO.


Why was the trade decline so large in 2009:

The 12% drop in the volume of world trade in 2009 was larger than most economists had predicted. This contraction also exceeded the WTO’s earlier forecast of a 10% decline. World trade volumes fell on three other occasions after 1965 (—0.2% in 2001, —2% in 1982, and —7% in 1975), but none of these episodes approached the magnitude of last year’s economic slide. Trade in current US dollar terms dropped even further than trade in volume terms (—23%), thanks in large part to falling prices of oil and other primary commodities.

Economists have suggested a number of reasons why trade declined so steeply, including the imposition of some of protectionist measures. But the consensus that has emerged centres on a sharp contraction in global demand as the primary cause.

This was magnified by the product composition of the fall in demand, by the presence of global supply chains, and by the fact that the decline in trade was synchronized across countries and regions. The weakness in private sector demand was linked to the global recession triggered by the sub-prime mortgage crisis in the United States. What began in the US financial sector soon spread to the real economy, with global repercussions. Limited availability of trade finance also played a role.

Sharp falls in wealth during the recession caused households and firms to reduce their spending on all types of goods, especially consumer durables (e.g. automobiles) and investment goods such as industrial machinery. Purchases of these items could be postponed easily in response to heightened economic uncertainty, and they may also have been more sensitive to credit conditions than other types of goods.

Whatever the reason for their decline, the reduction in demand for these products fed through to markets that supply inputs for their production, particularly iron and steel. Falling demand for iron and steel was also linked to the slump in building construction in countries where property markets had been booming before the crisis (e.g., the United States, the United Kingdom, Ireland and Spain).

According to the WTO's analysis, the fact that some products comprise a disproportionately large share of world trade, compared with their share of overall output, may have further depressed world trade flows relative to overall production (GDP or gross domestic product). For example, consumer durables and investment goods make up a relatively small fraction of global output but a relatively large part of world trade. Consequently, a decline in demand for these products would have had a greater impact on trade than on GDP.

The measured decline in trade was also inflated to some extent by the spread of global supply chains, in which goods may cross national borders several times during the production process before arriving at their final destination. Merchandise trade statistics record the value of goods every time they cross national boundaries, so when these data are summed to arrive at a figure for total world trade, the number will be larger in the presence of supply chains due to a certain amount of double counting.

The extent of this double counting is difficult to gauge due to a lack of readily available data, but it is reflected in the fact that exports have been growing faster than production since the 1980s. This ratio has increased steadily since 1985, and jumped by nearly one third between 2000 and 2008, before dropping in 2009 as world exports fell faster than world GDP.

A final factor that reinforced the 2009 trade slump was its synchronized nature. Exports and imports of all countries fell at the same time, leaving no region untouched. It is intuitively clear that the fall in world trade would have been smaller if contraction in some regions had been balanced by expansion in others, but this was not the case.

The synchronized nature of the decline is closely related to the spread of international supply chains and information technology, which allows producers in one region to respond almost instantly to market conditions in another part of the world. This usually contributes to global and national welfare by encouraging the most efficient use of scarce resources, but in the case of the trade collapse it may have spread the recession faster.


Trade prospects for 2010

Without any further upheavals in the global economy, world merchandise trade should resume its normal upward trajectory through the end of 2010, although some deviation from its previous trend line will persist indefinitely. The WTO Secretariat estimates that world exports in volume terms will grow by 9.5%, this year, while developed economies’ exports will expand 7.5% and the rest of the world (developing economies plus the Commonwealth of Independent States) will advance 11%. This projection assumes a resumption of global GDP growth in line with consensus estimates (2.9% at market exchange rates), as well as stability in oil prices and exchange rates. However, unexpectedly positive or negative economic news in the coming months could necessitate a revision of the trade forecast.

A 9.5% growth rate for trade is insufficient to bring about a return to pre-crisis levels this year, and even the 11% rate forecast for developing countries would not do the trick. However, two years of growth at this pace would result in trade levels surpassing the peaks of 2008. Developed economies, on the other hand, would require three years of growth to accomplish this.

These trade forecasts are more sensitive to changes in outcomes for developed countries than for developing ones, due to developed countries’ larger share of world trade.

There remain significant risks that the forecast could be over-optimistic, including the possibility of further increases in oil prices, appreciation or depreciation of major currencies, and additional adverse developments in financial markets.

However, there is also a possibility that trade may outperform the forecast, for example if unemployment rates fall more quickly than expected in developed countries.





Brief overview of trade developments in 2009

Trade data in volume (real) terms: merchandise

All countries and regions registered declines in the volume of their merchandise exports in 2009. The United States (—13.9%), European Union (27) (—14.8%) and Japan (—24.9%) all registered declines larger than the world average of —12.2%, while the smallest declines were recorded by the oil exporting regions of Middle East (—4.9%), Africa (—5.6%) and South/Central America (—5.7%). Asia (—11.1%) and China (—10.5%) also saw their exports decline, but by slightly less than the world average. (Table 2)

The situation was reversed on the import side, where the two largest declining regions were oil exporters — the Commonwealth of Independent States (CIS) (—20.2%) and South and Central America (—16.5%). Among the remaining countries, the United States (—16.5%) and the European Union (—14.5%) had declines greater than the world average, while Japan’s drop (—12.8%) was nearly equal to the world rate.


Trade data in value (nominal) terms: merchandise and commercial services

The value of world merchandise exports fell 23% to $12.15 trillion in 2009, while world commercial services exports declined 13% to $3.31 trillion. This marked the first time since 1983 that trade in commercial services declined year on year.

Transport services recorded the largest drop among service categories, followed by travel and other commercial services. The drop in transport services is unsurprising as this category is closely linked to trade in goods.

China has now overtaken Germany as the world’s leading merchandise exporter, accounting for almost 10% of world exports, and is second to the United States on the import side. The US share in world merchandise imports is 13% compared to China’s 8%.

Although the declines in export volumes of oil producing regions were less than the world average in 2009, their declines in value terms tended to be larger.

For example, the dollar value of exports from the Middle East, Africa and Commonwealth of Independent States fell by 33%, 32%, and 36% respectively, compared to a drop of 23% for the world.

This was due to the sharp drop in oil prices between 2008 and 2009.

On the unstable state of world trade systemics

News reports this week say that US lawmakers are urging trade action against China re its current exchange rate policy and other countries that pose barriers to access of US exports in their markets. These and potentially even bigger "shakes" in the world trade systemics and dynamics should not surprise those who have been reading my "food for thought" pieces on the unstable state of world trade systemics and globalization in general (on this blog or on Twitter) long enough.

IMO, no scenario is impossible as far as trade systemics are concerned, including WTO exit for US and EU (possible but not probable, yet IMO possible).

"Economic Fortress" USA and EU are not out of question IMO.

PS. The US has trade and investment barriers of its own, as well. But certain country/ies are masters in limiting market access (no need to mention name(s)).

World Trade in 2009

World trade down 12% in 2009!

On a major rethink of capitalism, moral trade, Davos, G20 and global governance, etc!

Recent intellectual policy endevours:

1) Who elected the G20 to make policy and regulatory decisions that the whole world will then "have" to adhere to?

That is one of the tweets I made in the last few days (again). A question I began to pose ever since a few months ago, under US/Obama Presidency, the G7/G8 decided to pass the torch of global leadership if not governance to G20 (after the end of the Canadian presidency).

What prompted me to tweet it again? Some of the comments by the "philosopher king", in Plato's use of the term, Nicolas Sarkozy, probably the only major political leader who cares to brainstorm in public (and upsets the balance of some other leaders who are not used to that "kind of thing"). Especially one where he says that G20 may be the sign of things to come, a global governance. But whereas I would be for a democratic global government (see below), I do not consider G20 "representative" of the world or even the UN members world or even the WTO members world.

So here is what I can think of in terms of models of real global governance:

G20 may be "more" representative (of the world) than G8 but leaves out 100+ WTO and UN members.

IMO a World Commission, Council and Parliament a la EU (EU style) is one solution.

IMO again, an other solution would be for the world to be structured into regional blocs, EU or US style, and have bloc leaders and reps meet to decide world policies and laws. In other words, instead of G20, a global government group should consist of: reps of the EU, African U, China, India, USA, 2-3 American Unions, 2 Asian Unions, Russia ....

I know that both models I sketch above are kinda radical thinking, but hey, a) that is my task as a policy thinker and b) that, fundamental (re)thinking seems to be the "in" thing these days, not only because of Nicolas Sarkozy.



2) One other major thing that Nicolas Sarkozy said in Davos at the World Economic Forum was his view of the need for a "fundamental rethink of capitalism".

Here are my comments (most were tweeted in the last 2 days)

* A fundamental rethink of capitalism? Of which capitalism (note: of all versions floating around these days)?

* A fundamental rethink of capitalism that N. Sarkozy proposes: Is that a task for economists, politicians, sociologists, philosophers, all?

* A capitalism that includes moving away from profit as the MAIN goal of business, ie give emphasis to micro and small companies instead of corporations. Via a new socio-economic model that includes among others much less regulation and simpler laws. Why? Because, IMO, in micro and SME based economies, profit maximisation is but one many goals, unlike large corporation based ones. Because micros and small firms are motivated by owners' ambitions, pride and other non-profit related goals, not maximising shareholder value per se.

* IMO it is not just capitalism that need a fundamental rethink: Most models and theories of past centuries still "in circulation" do!
In need of fundamental rethink: capitalism, marriage, sovereignty, national interest, "work", economy, trade, legal systems, finance, etc. But most of all, in need of fundamental rethink are: our ways of life especially in the "West" (Europe, USA, etc)


3) A "moral dimension" to "free" trade Nicolas Sarkozy is "searching" for!

IMO, that moral dimension would be "free" immigration among WTO member countries.


4) Other fundamental rethinks that IMO are in order:

a) In view of discussions re sovereignty and national interest (in the UK, US, etc), is there not a need for a 2010 relevant redefinition of them?
I find most recent discussions re sovereignty and national interest a tad "selective". Are trade, sovereign wealth fund and other investments, trade agreements, WTO, COP15 etc consistent with traditional definition of sovereignty? Why are then not included in the lists of those who think the EU is "violating" sovereignty of member states (IMO the Lisbon exit clause that allows/describes how a member state to/can leave the EU is an "ultimate" guarantee of the sovereignty of the member states)? Or are concerned about "foreigners" (see other posts in this blog re oxymora that I detect in the "foreign" discussions/rationales)?

b) Corporatism, in business, public sector, and other aspects of life is another candidate IMO for a major rethink in the way Nicolas Sarkozy proposes.


PS 1. New world economy order: China has approx. USD 2.4 trillion in foreign currency reserves and half of world output comes from developing countries these days!

US vs EU comparisons (Pop and Internal Market)

The EU is 66% bigger (in population) than US, 500 vs 300 million.
Even just rhe Eurozone, 328 million, is 9-10% bigger in population than the US.

Yet crucial difference in the socio-economic systemics and the "power" of the US economy in the world is, IMO, that the US has a well functioning Internal Market, in spite of the efforts of 17 years in the EU for the creation of a single market for capital, goods, services and, yes, jobs.

That is one of the reasons a "deeper" EU is IMO needed in order to raise the collective power of the EU members and citizens in a volatile world.

Read more on this in future posts.

The Trade War Chronicles: USA vs China

"Trade Wars" (a better word is "disputes") are handled mostly via the refereeing of the World Trade Organisation (WTO).

But let's look at the current situation:

USA vs China: 8
(+1 new re alleged "unfair" curbing exports of raw materials such as coke, zinc and magnesium)

China vs USA: 5

Renegotiating EU laws and powers + Renegotiating NAFTA, FTAs and who knows what else?

In the UK, the Tory leader Cameron wants to renegotiate EU laws and competencies.

In the US, a group of US Senators as well as many Reps want Obama to renegotiate NAFTA and other trade agreements! (see more on that as well as US and WTO and the Doha Round) in a post at my npthinkingus blog

US messages on trade and globalisation

The intra-US debates re the US's stance on trade and globalization send crucial messages to the rest of the world