The collapse in trade: things worth looking at

Menzie Chinn argues that there has been a structural break here. In other words, the decline in world trade can’t simply be explained by falling income: something more is going on. Amiti and Weinstein provide very interesting Japanese evidence in favour of the view that the something more is trade finance.

9 replies on “The collapse in trade: things worth looking at”

This is a key problem that none of the bank rescue attempts have addressed. Rather shows how aware the Fed at al are about trade? All the rescue attempts are about securing the capital of TPTB only. Hence the reticence to explain by the Fed, and special deals for Golden Sacks.
Good banks need to be capitalized to support trade, but big banks are being asked to take over bad and failing banks. Too big to fail? Too big and insolvent means they cannot lend and are zombie.
Nama also neglects trade, the one area where Ireland has out performed! But for how long?

Maybe we all have enough stuff? At what point does the marginal improvement in computer/ipod/tv/music technology outweigh the cost of change? (Not just in financial terms, but in the hassle of doing it).

So it is not lower income, or lower credit for purchases, but simple disinterest?

Are we bling-und-tat’d out?

Thanks again for the update in your thinking Kevin. It is great to have someone working on and very interested in this important topic as you are.

I attended a talk last night given by people who have started and successfully run their own companies in Ireland. Be it selling diamonds online, selling the services of a carpenter online or selling software around the world . . . yeah, that was ‘online’ also.

You can easily see what the trend was. Something to do with Ireland being an island and needing access to larger markets. I wonder how much ‘trade’ over the communications lines, is being considered in the studies you link to?

Yochai Benkler had a wonderful lecture from 2002 which you should watch. Search for:

yochai benkler meredith kip

He gave the lecture before he finished his book ‘The Wealth of Networks’.

Also of interest, in terms of how we transport bits and atoms around the place these days and hope to save energy in the process is a Charlie Rose episode.

Charlie Rose – Alternative Energy / Internet Technology

You can find it again using a google search.

Then lastly, there is David Korowicz, our own Irish physicist who has interesting ideas about global trade, and where we might be headed.

Go to vimeo dot com and search for his name. His lecture at Feasta this summer should come up.

If you really feel up to it, then I would suggest the podcast at IT Conversations featuring Bob Glushko and Annalee Saxenian.

Again, simply search on google.

They are describing their faculty of Information and Design at U.C. Berkley.

I have a couple of questions for the trade theorists that I hope they can help with.

China exports low value stuff in containers all round the world. To make use of the containers returning to China, they are filled with recyclable materials that either have a very low or negative value (i.e. the exporting country is paying for them to be taken away and recycled).

Suppose, in the case of Ireland, the value is negative. Does that mean an ending of the flow (due to fewer imports, fewer empty containers, lower demand from China) results in an export gain?

The second one is, I hope!, simpler – do financial flows count as exports? So say Seanie McSavvy buys, for example, an oilwell in Nigeria. He uses a loan that is funded from, say, Germany. How does this show up in trade figures? In theory, Ireland has just acquired an oil well and received FDI (the loan) from Germany? Or is capital accounted for differently?

Finally, do the domestic banks provide trade finance? And what proportion of exports does it account for? I know the IFA have been complaining about the lack of export finance for agricultural produces, is this also reflected in the wider indiginous export sector or the multinational sector?

Sorry, I have one more question. I can’t see that the paper corrects for intra-company transfers. In some economies, such as Japan, and probably Ireland, some of what is exported is not destined for a buyer, but instead goes to another part of a company that finishes the product, packages it, assembles it, or sells it on to local warehousers and sellers. These exports would, I presume, have no requirement for trade finance as the invoicing is notional (it is asset transfer out of the country rather than sale). No?

Sorry if these questions are a bit amateurish!

@yoga, the answer to the second question is straightforward, both of Savvy’s transactions (borrowing, and then acquiring the oilfield) will show up on the capital account of the balance of payments, and thus don’t enter the current account at all.

On the first question: do we really pay for the stuff to be taken away? In this case, I guess such payments would count as imports, and a reduction in such payments would lower measured imports, and improve the trade balance (but not improve exports). If you want to be cynical about exports, assuming that such is your intent, good old transfer pricing would seem to offer more promising options for you.

Anyone going to hear Peter Clinch and others talking/debating on Wednesday? I noticed he has co-authored some papers with Frank Convery, so I am quite interested in what these guys all have to say.

He might offer some useful perspective on how Ireland aught to plug itself back into the global trade system again.

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