Mariarosaria Comunale, Justas Dainauskas, Povilas Lastauskas, 09 March 2021

International trade flows are volatile, imbalanced, and fragmented across offshored supply chains. But there is still a lack of understanding about why global trade shocks, such as the Covid-19 pandemic, result in synchronised, but remarkably unequal trade flow responses across countries. This column argues that less-integrated countries focusing on arm’s-length trade experience the greatest trade flow disruptions in response to global trade shocks, while trade flows between more integrated countries relying on intermediate imports tend to dip less and bounce back more rapidly.

Rajiv Kumar, Dony Alex, 27 November 2009

India’s trade collapsed alongside global trade, although its decline started earlier due to a concerted effort by the Reserve Bank of India to cool the economy in 2008. Demand-side factors seem to be the primary culprits. Looking forward, India should overhaul its export promotion mechanisms, shifting the focus to the binding constraints – physical infrastructure problems, skill shortages, procedural complexities, and inadequate access to commercial bank credit, especially for the small and medium exporters.

Aaditya Mattoo, Ingo Borchert, 27 November 2009

Goods trade has collapsed; services trade hasn’t. The likely reasons are that demand for many traded services is less cyclical and their production is less dependent on finance. As services trade seems inherently less affected by crises, services should play a more prominent role in developing countries’ diversification strategies.

Anne Krueger, 27 November 2009

Collapsing trade worsened the crisis, but trade’s revival could do much to shore up prospects for a sustained upturn. Unlike many stimulus measures, reviving the Doha Round and strengthening the open multilateral system could be achieved with little, if any, fiscal cost. It is also essential to ‘rebalance’ the global economy. Successful emerging markets and other countries with large current account surpluses will have to shift gradually toward more reliance on domestic demand and less on export growth.

Jeffry Frieden, 27 November 2009

Re-balancing global trade will be difficult, generating substantial protectionist pressures. To manage these pressures, governments must maintain domestic political support for an open world economy. This in turn requires flexible responses to national political pressures. Rigid, unrealistic insistence on exemplary behaviour will be less fruitful than efforts at modest, feasible cooperation on trade policies. Above all, governments singly and jointly need to address the underlying macroeconomic causes of the imbalances to prevent serious trade confrontations.

Fred Bergsten, 27 November 2009

Current US fiscal policy is likely to produce current account deficits rising to $1 trillion by 2015 and $3 trillion by 2025; net foreign debt would reach $15 trillion by 2020, taking the US’s foreign-debt-to-GDP ratio far beyond the threshold that normally triggers currency crises and forces painful economic retrenchment. To avoid catastrophic risks stemming from soaring foreign debt, the US needs a plan for long-run fiscal sustainability.


CEPR Policy Research