The announcement by the World Trade Organization that global trade last year was the worst since World War II must represent bad news for the Caribbean region. Apart from the well known struggles of the old agricultural commodities, sugar and bananas, in recent times we have heard reports that the bauxite mining and alumina processing sector in Jamaica is to be closed as aluminium demand slumps with the US auto and aircraft manufacturing industries.
In its assessment of 2009 and prospects for 2009 the WTO said:
“The collapse in global demand brought on by the biggest economic downturn in decades will drive exports down by roughly 9% in volume terms1 in 2009, the biggest such contraction since the Second World War. The contraction in developed countries will be particularly severe with exports falling by 10% this year. In developing countries, which are far more dependent on trade for growth, exports will shrink by some 2%-3% in 2009.
According to the trade regulator economic contraction in most of the industrial world and steep export declines already posted in the early months of this year by most major economies – particularly those in Asia – makes for an unusually bleak 2009 trade assessment
Signs of the sharp deterioration in trade were evident in the latter part of 2008 as demand sagged and production slowed. Although world trade grew by 2% in volume terms for the whole of 2008 it tapered off in the last six months and was well down on the 6% volume increase posted in 2007.
WTO chief economist Patrick Low says the trade growth figure for 2008 was two percent, which was considerably lower than the trend growth rate for exports.
“For the last 30 years trade has been an ever increasing part of economic activity, with trade growth often outpacing gains in output. Production for many products is sourced around the world so there is a multiplier effect – as demand falls sharply overall, trade will fall even further. The depleted pool of funds available for trade finance has contributed to the significant decline in trade flows, in particular in developing countries,” said Director-General Pascal Lamy.
“As a consequence, many thousands of trade related jobs are being lost. Governments must avoid making this bad situation worse by reverting to protectionist measures which in reality protect no nation and threaten the loss of more jobs. We are carefully monitoring trade policy developments. The use of protectionist measures is on the rise. The risk is increasing of such measures choking off trade as an engine of recovery. We must be vigilant because we know that restricting imports only leads your trade partner to follow suit and hit your exports.
The financial crisis, which was triggered in the USA has been fingered as the cause of the collapse in trade.
“Following the dramatic worsening of the financial crisis since September of last year, real global output growth slowed to 1.7%, compared to 3.5% in 2007, and is likely to fall by between 1% and 2% in 2009,” said the WTO. “This is the first decline in total world production since the 1930s, and its impact is magnified in trade.”
It was therefore understandable US President Barack Obama’s public relations effort on Monday when he distributed an op ed piece carried by newspapers in about 31 countries, in which he called for global collaboratibe effort to right the flagging economy.
“We are living through a time of global economic challenges that cannot be met by half measures or the isolated efforts of any nation,” he wrote.
“Now, the leaders of the Group of 20 have a responsibility to take bold, comprehensive and coordinated action that not only jump-starts recovery, but also launches a new era of economic engagement to prevent a crisis like this from ever happening again.
“No one can deny the urgency of action. A crisis in credit and confidence has swept across borders, with consequences for every corner of the world. For the first time in a generation, the global economy is contracting and trade is shrinking.”
Asserting American leadership in the global effort, Obana declared, “Our leadership is grounded in a simple premise: We will act boldly to lift the American economy out of crisis and reform our regulatory structure, and these actions will be strengthened by complementary action abroad. Through our example, the United States can promote a global recovery and build confidence around the world; and if the London Summit helps galvanize collective action, we can forge a secure recovery, and future crises can be averted.”
On March 27 Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF) will hold a live press conference from Paris via video transmission to Washington and London, in which he will discuss prospects for the upcoming G-20 Summit meetings April 2 in London and the role of the IMF in addressing the current global economic and financial challenges.
Whether the Caribbean and dthe rest of teh developing world will have a voice in the affairs that so affect their economies is to be seen. On march 20 the WTO’s Lamy’s message to African Union Trade Ministers when he addressed them in Addis Ababa was “Keep trade open; keep opening trade”.
“The impact of the crisis is much stronger in countries that depend more than average on trade, which is the case for many developing countries,” he said.
That is true for the Caribbean where open trade has killed manufacturing and the fall in demand for exports is killing the economies of the region. Maybe when Obama meets leaders at the Summit of the Americas in Trinidad and Tobago in mid-April they will have their chance to learn just how much of a part there is for the Caribbean in this global reconstruction.