Jesse Mora, William Powers, 27 November 2009

The giant and global drop in trade was concurrent with an equally colossal and global credit crunch. Did the financial market turmoil directly disrupt trade by reducing the availability of trade financing? This chapter marshals the best available evidence on the importance of trade-credit financing as a cause of the crisis. Surveys of participants indicate that trade-credit problems were the number two cause of the trade collapse (after demand). Europe and North America experienced bigger problems early in the crisis, but by mid-2009, the problem was mainly felt in Eastern Europe and Africa. The scant direct evidence, however, suggests that the drop in trade credit was shallower than the drop in trade. Policy responses to shore up trade credit were early and massive; these may have dampened credit problems.

Michael Ferrantino, Aimee Larsen, 27 November 2009

The US was critical to the global trade collapse and will be pivotal to the sustainability of the ongoing trade revival. This chapter documents the US role in the great trade collapse. It warns that the US trade recovery is relatively fragile, as it started late, has been dependent on a one-time stimulus for autos, and has not stimulated demand for imported capital goods as much as consumer goods. It is thus unclear whether US import demand can support other economies’ recoveries without a significant improvement in US business confidence.


CEPR Policy Research