The world trade slowdown continues, and worsens

The latest World Trade Monitor showed the volume of world trade falling in May by 1.2 per cent. It slid in four out of five months in 2015 and risen just 1.5 per cent in the past 12 months — less than the growth in global output and far below the long-term average of about 7 per cent a year.

The problem has been getting worse for some time. Trade bounced back fairly well in 2010 after the global recession but it has disappointed ever since, growing by barely 3 per cent in 2012 and 2013. Now it seems the world cannot manage even that.

That is from Stephanie Flanders.


Unrelated but let's be honest, I skip the posts half the time to come read the comments.

The more hand-wringing and shame the establishment casts upon Trump, the more I like him. I went in thinking he was a complete twit, and probably he is, but man has he got some panties all up in a bunch.

Yup, and related to topic here, cuckservatives (and cucktarians) will continue to push for more immigration, even though it is impoverishing middle classes and destoying Western culture.

Not much since '09.

Where are these "posts", as you call them?

I'm pulling for a Trump v. Sanders general election.

I'm hoping for the epic Trump vs Biden general election.

hmmm, when governments are not printing money and buying stuff like trains and tracks and roads and paying lots of workers, consumers who have been blocked from buying anything by all the government buyers elbowing their way to front of the line are supposed to spend more borrowed money buying imports.

After all, when workers are fired or their wages are cut, their taxes are cut which puts more money in their pockets which makes them richer so they will borrow even more to buy more imports.

Why is it never a focus on total labor wages paid, with alarm bells ringing with aggregate labor income falls and calls for government to fix that problem by hiring more workers to increase incomes?

Get worker incomes up, and GDP and trade will increase.

Because aggregate labor income (in nominal terms), isn't falling. You don't like looking at economic statistics, mulp.

Admit it, you're a Modern Monetary Theory follower.

It could be that world trade is a 'safety valve' for excess production, and only when an economy is 'firing on all cylinders' does world trade thrive. When demand is low, there is no need for world trade. Or, alternatively, that idea is wrong and some other factor is in play.

I'll tell you this though: less world trade = less western tourists in the Philippines = more fun for me here. Like a good fishing hole that nobody knows about.

How much of that is oil? How much of that is other primary commodities? How much of that is manufactured goods and how much of that is services? My guess, it's all about oil.

Global exports are roughly $18 trillion.

Oil exports are around 14 billion barrels/year.

Oil prices fell by around $50/barrel so that's $700B/year.

The decline in oil prices alone means global trade should fall by just under 4%, all else being equal.

None of it is oil, at least in principle. The CPB trade figures are in volume (i.e. real) terms, so they are deflated by changes in oil prices, exchange rates, etc.

The US is importing less in volume. What about other countries?

How much energy is the U.S. importing since the fracking boom? That and decline in energy prices probably accounts for most of the decline.

Expect more to come as automation strips out labour cost as compRative advantage altogether.

Just to reiterate and clarify my comment above, falling commodity prices do not explain the decline in the CPB trade data. These figures are in volume terms, so they are deflated by export and import prices, which include commodity prices and exchange rates. In quantity terms, US imports of Mineral Fuels for the year to date are actually up slightly (+2.3% Jan-May according to customs data).

I have a hard time understanding what you are saying because the figures are in dollars, not units of volume. If you wanted to eliminate the impact of oil prices you could use a fixed oil price from say, 204. But then as oil exports/imports increase or decrease (in volume terms) the impact on the global trade data would be exaggerated because of the high $ basis used for estimating the contribution of X barrels of oil.

Ms. Flanders blames weak capital investment and weak demand. For awhile, weak capital investment in the U.S. and other developed countries was at least partly offset by strong capital investment in developing countries. No more. And while demand has picked up in the Eurozone and in the U.S., capital investment has not. The world is awash with capital, yet it's going in all the wrong places: not in investment in productive capital, but speculation in (among other things) financial assets. What can turn this around, what can induce owners of capital to invest in productive capital? Cutting taxes on capital? We've cut taxes on capital, again and again, yet capital investment remains weak. The other answer is to focus on demand, that without measures to increase aggregate demand, capital investment will remain weak, as owners of capital will continue to prefer the potential returns from speculation over weak returns from productive capital. What's worrying about the essay by Ms. Flanders is that weak capital investment and weak demand in the developed world has now spread to the developing world, and international trade, once the path to rescue a moribund domestic economy, won't be there this time.

"The world is awash with capital, yet it’s going in all the wrong places: "

How do you know?

" focus on demand, that without measures to increase aggregate demand, capital investment will remain weak, as owners of capital will continue to prefer the potential returns from speculation over weak returns from productive capital."

Who is the guy behind the curtain that increases aggregate demand? And why would he do it? Aren't returns from speculation ultimately dependent on on productive capital? Or does the financial sector just trade instruments back and forth? In a poker game of any duration money for bets has to come from somewhere outside of the game itself, from unrelated productive activity.

Here's the link to an essay in the NYT by Victor Fleischer attacking Ms. Clinton's tax proposal. According to Fleischer, corporate executives invest corporate funds according to how the executives are taxed on their compensation. I suppose on some level that's true, but the far greater factor is the expected return from the investment. I'm not defending Ms. Clinton's tax proposal (which she says will counter short-termism, whatever that is), but rather I am simply pointing out the obvious, which Fleischer and so many others can't see. Nor am I promoting Keynesianism. My focus is on the investment side, in particular investment in productive capital. It's an article of faith for many that there's no such thing as speculation, and even if there is, it's a good thing because gains from speculation will somehow magically find their way into productive capital. When speculators A and B sell financial assets to each other, capital doesn't magically find its way to Company X to invest in plant and equipment (i.e., productive capital), not as long as A and B continue their speculative ways, it's only when the capital ends up with Company X that it will be invested in productive capital. Yet, the IPO market has all but disappeared, and often much of the proceeds received in stock offerings, whether initial or secondary, go to early investors and not the company. It's true that at least some of the proceeds received by those early investors as well as some of the gains realized by speculators A and B find their way into banks who can lend to Company X to invest in productive capital. But banks aren't lending to borrowers who intend to invest in productive capital: banks either aren't lending or they are lending to speculators (sometimes called hedge funds etc.). Speculators selling financial assets to each other is no better than consumers selling houses to each other; indeed, it's worse - at least with houses we end up with more houses.

You post more or less the same rant about "productive capital v.s. speculative capital" on every semi-relevant thread here. Rather than just posting it over and over, how about trying to develop your ideas a little more.

It sounds like you are just advocating for government spending to prop up "productive capital" or regulations and taxes to curb "speculative" investment. It's almost guaranteed that we would then be much worse off because all of that would be directed without any profit motive (except corruption), accountability, or feedback.

Also, you are being extremely loose in your discussion of speculative market activity. Almost all transaction volume in securities ultimately involves exchanging one claim for another. This has no direct impact on investment in "productive capital".

Finally, you are making a massive assertion that investment opportunities in "productive capital" are being mispriced by the market. If you really believe that you should be starting a private equity firm. Label me a skeptic.

Of course, the solution to discourage speculation is to let markets be markets. That's what's promoted at Mercatus (and elsewhere). Read Boettke's essays. He's in favor of letting markets be markets because, as he states, he has tenure. Do you have tenure? My observation about those who profess total faith in markets is that most of them will experience a conversion not unlike that of St. Paul on his way to Damascus when asset prices are collapsing and owners of assets are staring into the abyss. I would prefer policies that discourage speculation and encourage investment in productive capital rather than relying solely on markets and the abyss. But I don't have tenure.

It slid in four out of five months in 2015 and risen just 1.5 per cent in the past 12 months — less than the growth in global output and far below the long-term average of about 7 per cent a year. -

In other words, there has been some re-balancing and a relatively higher share of domestic consumption is satisfied by domestic production (after decades during which the share satisfied by imports increased). This is a problem precisely why?

I was wondering the same thing. As economies mature, they shift to a higher percentage of services, which are more likely to be locally provided.

Just curious, what is the appropriate amount of international trade per year? Obviously there must be some perfectly optimal dollar figure we should be striving for. Or is the answer just "more than last year, no matter what!"

Most human conduct is "motivated."
Trade is Human Conduct

What are the motivations for specific trade amongst specific peoples?

When put into a "national" context, what does the population (workers or consumers) of France want from India; and those of India from France? Well, we know that bi-literalism is not a very useful approach. So, what is it those of any region want from those of other regions in return for what is wanted of them by other regions?

There are nations which try to find a need elsewhere and fill it (Germany?) regardless of internal want or need for goods or services from elsewhere. Some nations are "stuck" with finding those who "want" (or will take) what they produce in exchange for something that can be used or exchanged for what that nation wants or needs.

Nuch has been the exchanges of labor that is not so specifically differentiated (productively/cost function) such as hand vs. machine to create distinct comparative advantages. Those advantages that drove trade shrink, some trade shrinks; some wants are transferred or delayed.

It's called the securitization market imploding. The leveraged fuel driving asset prices since the early 90's .....

Now the smartest men / woman in the room have no long term answers, deflation is baked into the cake now that securitization leverage machine is broken for good ( forget the used car market, that will also implode like mortgages did in 2007 ).

Since the smartest guys in the room stood by and allowed this leveraged ponzi's growth produce bubble after bubble heck China built a manufacturing complex on the foundation of sand. As the deflation tsunami continues sucking water from the shoreline it's a pity nobody has the answers now from Chicago, MIT or Stanford. Nobody stood up for sanity or truth, now we are sitting with wealth transfers, sovereign debt placing long term obligation upon the " people " .....

Now you add upon this construct, technology job cram down upon global growth regarding jobs as robotics ect take over. Just like the nuclear containment vessels, the smartest guys in the room invent this shit but once it exits containment they have no answers. So ZIRP it is ..... Always moping up a mess without projecting complex system failure so we have money velocity crashing, deflation still in the early inning of an extra inning game. Just once it would be nice if someone would question these issues before it rips the face of a global economy destroying families and those " on the outside ".

Instead of Bernanke being lauded as saving something he should be called out as nothing more than janitor cleaning up someone else's mess with more can kicking ...... Debt issuance fixing a leveraged debt crisis ?? Only the truly insane could believe this possibility and the back slapping, golf claps going around the halls of economic think tanks should be called into question because solutions are not talked about just more can kicking alchemy devised ......

The globe had more robust economic growth back when central banks printed money more freely.

Tight money does not work.

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