Peter Schott, 27 November 2009

If the current “shock” to US trade is similar to previous ones, most of the decline in exports and imports stems from a decline in sales of previously exported goods rather than a decline in the number of products exported. To the extent that is true, trade will bounce back relatively quickly once conditions improve. The alternative view is that the severe credit crunch produced a higher-than-usual share of harder-to-reverse firm exits – potentially dampening the speed of recovery. Even if this did occur, history suggests that it will be concentrated amongst small firms which account for only a small fraction of US exports; US multinationals dominate US trade and these firms have the wherewithal to weather the credit crunch. Should the dollar continue to decline, US firms will broaden the range of products exported and the range of markets reached, putting further downward pressure on the trade deficit.

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