World trade: The protectionism that wasn’t

Posted: September 10, 2013 in economy
Tags: , ,

“WHEN it comes to international trade, actually it’s not the Great Depression, it’s worse.” So said Paul Krugman in 2009. Global markets were certainly rattled by the financial crisis. Trade plummeted. Credit seized up, investors became nervous and consumers tightened their belts. And it became harder to shift bikes to Belgium and cotton to Canada. In the year following the collapse of Lehman Brothers the World Trade Monitor, an index created by the Netherlands Bureau for Economic Policy Analysis, saw a 30% drop.Economists like Mr Krugman were worried that the world was repeating the mistakes of the 1930s. As the world entered the Great Depression, countries stopped trading. Import barriers were imposed by the dozen. Governments were under the impression that protectionist measures would save domestic jobs. And this worsened the crisis as the 1930s wore on, with exporters around the world going bust.But the doom-mongerers might be proved wrong. Since 2009, trade has rebounded. Today, trade volumes are well above their pre-crisis levels. And the recovery is much more rapid than it was during the economic travails of the 1930s:

Jan 2008=100; June 1929=100 (source: World Trade Monitor, Eichengreen and O’Rourke (2009)
Trade has rebounded partly because countries did not become too protectionist. According to research by the Federal Reserve Bank of Chicago, the number of …

via Economic Crisis


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