World Economy

World trade again

On an annual basis, the volume of world trade fell by 25-30% between 1929 and 1932. If you use quarterly data, you can push the peak to trough Great Depression trade decline up to around 35%.

The latest data indicate that the volume of world trade fell by 13% between August and December 2008. We are not only on track, we are ahead of schedule. Everything now depends on the policy response.

9 replies on “World trade again”

Those figures are scary, hopefully protectionism will be avoided at all costs. The data could suggest a short sharp and painful global recession if let run its course as the floor would be reached quickly and investment could then resume.

It is widely said that the great depression was compounded by protectionism, but was it made a lot worse by the stimulus / spending of FDR? I’d be interested if anyone could recommend a good book on the economics of the great depression to see what actually happened? My understanding is that the US was still in depression in 1940 which suggests the stimulus compounded and lengthened the depression?

This alternative view is supported by the following:

Ciaran: all serious students of the Great Depression, from Keynes to Milton Friedman, agree that the primary reason that that depression became great was that monetary policy was excessively tight for too long; and that recovery began when governments started to run looser monetary policies, and in some cases fiscal policies as well.

I would recommend Peter Temin’s Lessons from the Great Depression, and Barry Eichengreen’s Golden Fetters.


I had a question regarding the decline in global trade in the Great Depression. A colleague pointed me to the following data point

“Overall, world trade declined by some 66% between 1929 and 1934”

Other estimates appear in different places on the net:

“by 1932 the total value of world trade had fallen by more than half”

I did find a point from Jakob B. Madsen’s paper on Trade Barriers and the Collapse of World Trade During the Great Depression that “From 1929 to 1932 world import and export volume in the industrialized nations decreased about 30%”

Can you explain the data point please?

Kevin, I noticed this extraordinary drop in world trade in an earlier post using IMF data to November 2008. This showed an annualised drop in the value of trade of 42% in the quarter to November, even larger than the figure you quote from the CFB.

However, there may be signs that world trade is starting to pick itself off the floor, with the Baltic Dry Index now significantly up on its value only three months ago, though still far from its peak.

The Baltic Dry is a price weighted measurement for the general cost of shipping or receiving raw goods. It is generally accepted as a good leading indicator because the demand for raw goods usually precedes the demand for finished goods. When companies start to demand shipments of these raw goods then the Baltic Dry Index will trend higher due to an increase in demand for vessels for shipment. The index peaked in May 2008 at around 11,400, and collapsed to 660 in early December last year. However, in the two months since then it has recovered to just over 2055. You can track its progress at

Mick: The figures for declining world trade 1929-32 that are typically quoted are in gold dollars, and incorporate both the fact that the volume of trade was declining and that prices of the goods entering into trade were declining. My figures referred to the volume of trade. As Alan points out, if you look at the value of trade today, it is also declining much more rapidly than the volume.


One aside is that a great difference between the 1930s and now is that manufactures were 100% of world trade then, but less now. For a country with 40%+ of its exports in services, this is more than just a curious aside. World trade in manufactures showed no growth during the last slowdown (2000-2), while services trade grew at 14% (7% p.a.). Job losses in Ireland so far from this slowdown have been concentrated in manufacturing, electronics in particular.


If monetary policy was excessively tight for too long in the Great Depression of the 1930s, has it already reached its limits today? Martin Wolf seemed to suggest so earlier this week: “it cannot be stressed too strongly that in a balance-sheet deflation, with zero official interest rates, fiscal policy is all we have”.

My question is: did monetary policy in the US cause the asset price bubble? Greenspan’s policy from 2000 in refusing to accept a market correction must take some of the blame.

And if monetary policy got us into this mess, how does reflating (the bubble) get us out of the mess, surely it will most likely lead to inflation after a temporary disinflation…in other words back to the 1970s stagflation? (in Europe & Ireland too)…although maybe this is the best way of avoiding a depression.

The rise in the price of gold surely indicates the inflation by the Fed and ECB will hit the general price level sooner or later:-

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