07/12/2023

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International Trade in the Midst of Global Financial Crisis

International Trade in the Midst of Global Financial Crisis

Imports and exports in the midst of Global Financial Crisis

With the world in the grip of a deep recession and no clear way out, how have imports and exports been affected? How have those who rely on shipping trade been getting along?

Short term credit

The first point to note is that this crisis has affected credit, but more importantly for the shipping industry, short term credit used for shipping transport has dried up, with some port agents refusing to even accept credit notes from certain banks. Short term credit use in the shipping industry is wide spread, so this is a major issue. This has had a big impact for the shipping industry as a whole, as businesses struggle to hold on to cash and try and live on a credit-free diet.

Developing economies push towards domestic demand

The US has been heavily impacted by the crisis, where the global meltdown started. High profile developing countries have had to change tack. In the past the economies of India, China and even Brazil fueled their growth by producing cheap goods and relying on first world economies, such as the US and EU, to purchase their goods, thereby bringing in much needed foreign capital, as well as stimulating demand and increasing production.

Well, the party is over now, and these nations (particularly China), are looking to the future by investing in their local economies to stimulate domestic demand and wean themselves off their reliance on export markets.

These nations, it seems, would much prefer to import more. This is good news for international trade going forward, as this will even out some of the trade imbalances that have occurred in recent years, and encourage more trade going forward.

Reluctance to put restrictions on trade

During the biggest major financial and economic crisis – the Great Depression – most of the major economies in the world resorted to protectionist measures, such as unbearably high import tariffs and harsh trade legislation. These measures did little to help the situation and in fact exacerbated problems.

The UK has come out and said that it will not resort to protectionism to help their ailing economy. The rest of the world has, so far, adopted a similar attitude. The lessons learned from protectionism during the Depression means that it will take a very foolish (or brave?) politician to implement such measures again, especially in the new globally connected era.

At the moment, times are not as good as they once were for the shipping industry, which has not proven immune to the pressures of the global economic slowdown. But given the change of focus developing nations and the continued open trade environment, business has not been too bad. Looking forward, imports and exports should start to see some recovery and even modest growth by the end of the year.