Similarities to 1920’s continue: global trade tumbling; protection up

The economic news is getting more frigthening for someone who has studied the period between the World Wars, specifically 1920-22.  We already had similarities across political schism, unsustainable public debt levels, exchange rate volatility, currency depreciation as a defensive move to try to grow exports (that failes/failed), and now we have data to show that world trade is falling again.

The article in the US print edition of the Wall Street Journal titled, Worries Rise Over Global Trade Slide, shows that global trade, already sluggish, is slowing even more.  After the financial crisis global trade recovered sharply but has then averaged 3% a year, compared to 6% a year from 1983 to 2008.  The data is from the World Trade Organization (WTO).  

Growing global trade helps drive productivity increases as it provides a means for specialization and more efficient use of resources.  Of course for some, this appears short term as local displacement of employment.  But overall data shows that global trade, rather than local trade, is what drives greater economic growth.  

There are several reasons given, in the article, as to why global trade has not recovered.  These include economic maliase at local levels (e.g. US, Europe), the recent Chinese slow down, but also the failure to negotiate new and updated trade deals.  It is as if each soverign nation continues to behave as if they can survive and grow independent of each other.  Such behavior is reinforcing the stagnation and adding to the sense of nervousness that now drives the stock market.  We have lost our mojo.

To hammer home the point, just look at another front page article today: Price Tag of Sanders Proposals: $18 Trillion.  Really?  The left-of-center candidate for the Democratic nomination has just released data on his spending plans, should he become president.  It is as if we can buy our way to office (we can) and spend our way out of a hole (we can’t).  And the masses might even fall for this line.  The fact that such spending ideas can be sold demonstrates how far we have come, and how much of our mojo we have losst.  And now the emperor has new clothes.


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