Declining Global Trade a Serious Concern

Discussion in 'Economics' started by crgarcia, Mar 13, 2009.

  1. Declining Global Trade a Serious Concern
    Last Update: 13-Mar-09 09:48 ET

    Forget foreclosures. Forget the U.S. budget deficit. Forget unemployment.

    The scariest trend in the economic numbers is the plunge in global trade.

    The January U.S. trade data released Friday reveal a startling and rapid plunge in overall trade. This is more important than the relative level of exports to imports (the trade deficit and its trend) for the month of January.

    U.S. exports are down 25.4% over the past six months, from $167.5 billion in July 2008 to $124.9 billion in January 2009. That, of course, is over a 50% annual rate of decline.

    U.S. imports are down even more. The decline over the past six months is 27.0% from $230.0 billion to $160.9 billion. Again, over a 50% rate of decline.

    As frightening as this is in terms of U.S. exports and the implication for U.S. companies, the view from the other side is even worse.

    China and Japan are noteworthy U.S. trading partners that are being hammered. Japan's exports fell 46% in January 2009 compared to the year-earlier figure. This chart shows how quickly the turnaround has occurred. This is a country that has built their economic policy around exports.

    China policymakers are also understandably deeply concerned. Chinese exports were off 25.7% in February from a year earlier. That "smaller" decline masks the severe plunge in recent months. Their trade surplus as down almost 50%, which raises the concerns about continued participation by the Chinese in buying U.S. treasuries.

    Less frequently discussed, but perhaps even more frightening in a different way, is the decline in receipts for oil exporting nations. Venezuela, Russia, and Iran have, along with many other countries, seen a sharp decline in the value of oil exports. After all, oil prices have declined 70% in half a year from $140 a barrel to $40 a barrel.

    These are countries that rely heavily on oil revenue. The governments of these countries will be hard pressed to deal with the economic and social turmoil that is likely to worsen in the months ahead.

    Venezuela, for example, has wasted an opportunity to modernize their economy over the past decade while oil revenues increased sharply, and now faces food shortages. The "government" in Venezuela, as is well known, has a less than friendly relationship with the U.S. and many South America countries. Geopolitical unrest is a distinct possibility.

    Trade has been a vital factor in global economic growth the past few decades. The opposite is now true.

    *******************'s economic and interest rate outlook:
    '08Q1 Q2 Q3 Q4 '09Q1
    Real GDP 0.9 2.8 -0.5 -6.2 -4.0
    GDP Price Index 2.6 1.2 4.2 0.5 0.7
    Consumer Spending 0.9 1.2 -2.3 -4.3 -3.0
    Business Investment 2.4 2.5 -0.1 -21.3 -20.0
    Unemployment Rate 4.9 5.3 6.1 6.9 7.9
    Fed policy target (avg.) 3.2 2.1 2.0 1.0 0.25
    10-yr Treasury Yield (avg.) 4.3 3.6 3.8 2.4 3.0