HOW DO YOU BELIEVE THE RECENT FINANCIAL CRISIS HAS IMPACTED INTERNATIONAL TRADE ?
In August 2007 began what is now called the Global Financial Crisis. Although it was triggeredby the collapse of the housing bubble in the U.S., it has spread to all the world with dire consequences for global trade, investment and growth.
What are, in a global economy, the effects of this« financial tsunami » on international trade ?
The obvious answer to the question is that the crisis is impacting trade in a negative way : Economies worldwide slowed and world trade collapsed at apace unseen since the Great Depression of the 1930s. Therefore, we will focus on the causes of the trade collapse rather than on the collapse itself.
We could simplify a lot and say that thecrisis’ consequences are a large scale version of what the crisis is doing on an individual level. For instance, we will take the example of Tom and Lynette, from the TV show Desperate Housewives (produced byMarc Cherry). Tom, Lynette and their children represent an average family ; they are not extremely wealthy but don’t have any major money troubles. But as the crisis occurs, they refrain theirspendings « just in case ». Indeed, people spend less out of fear they might lose their jobs or that their investments will drop in value.
This is exactly what happened at the world level. Countries,like Tom and Lynette, implemented protectionnist policies out of fear of what might happen. They raised their tarifs and lowered their import. Futhermore, because of the very tight links between financeand trade, one of the biggest impact of the crisis is that normal business credit (to cover the cost of goods between when you buy them and when you sell them) has dried up completely. This is a majorinhibitor on trade that strenghened the protectionnist trend. People care about their own interests and tend not to exchange in order to protect them ; eventhough this isn’t efficient. And even...