What is really happening to world trade?

One of the features of economic life used to be that the world economy grew and that world trade grew even faster. This was a welcome development albeit one marred by the fact that there is an element of double-counting in world trade called the Rotterdam Effect. Back on the 12th of October I explained the OECD definition of it.

Traditional measures of trade record gross flows of goods and services each and every time they cross borders. This ‘multiple counting’ of trade can, to some extent, overstate the importance of exports to GDP.

I added to that the effect on some countries is very large and the Netherlands is once hence the name.

If we switch from Gross exports to value added then 36% of her exports in 2009 vanished into thin air,which has quite an impact on one’s view of her as an exporter.

Others are on the list as well.

Belgium may be grateful for the phrase Rotterdam effect as otherwise there might be an “Antwerp effect” as 35% of her gross exports vanish using a value added system……Luxembourg. Of its 2009 exports some 59% vanished if we move to measuring value added……….

Also trade figures have all sorts of problems as I pointed out back then and let me illustrate that with an example of a commodity which has been on the move in 2016 which is gold and my own country the UK.

The range of these revisions to the annual trade balance is between negative £5.0 billion and positive £3.0 billion. (announced in the 2014 Pink Book)

Makes you wonder does it not about the accuracy of it all as that money was shuffled from the financial account to the trade one? Time for The Stone Roses.

I’m standing alone
You’re weighing the gold
I’m watching you sinking
Fool’s gold

Indeed it is time for some revisionism about The Stone Roses as of course these days it would not only be their music which adds to GDP but the drugs too.


There has been some doom mongering in Shanghai already at the G-20 meeting with ABC News summarising it like this.

Global growth is at its lowest in two years and forecasters say the danger of recession is rising. The IMF cut this year’s global growth forecast by 0.2 percentage points last month to 3.4 percent. It said another downgrade is likely in April.

I do like the idea of the IMF being able to forecast economic growth to 0.2%! Regular readers here will of course be thinking it was wrong yet again. Oh and its Managing Director is bleating on about reforms, yes the same reforms that were promised at G-20 in 2014 as Groundhog Day returns. The 2% of extra economic growth will only come apparently if all that hot air reaches a wind farm.

The OECD has been on the case to as well according to Reuters.

Global growth prospects remain clouded in the near term, with emerging-market economies losing steam, world trade slowing down and the recovery in advanced economies being dragged down by persistently weak investment.

This was reinforced by hints of more easing from the People’s Bank of China which is convenient with the G-20 circus being in Shanghai. So let us move on with the mood music being downbeat.

The world trade figures

The Financial Times has been doing some click bait scaremongering overnight.

The value of goods that crossed international borders last year fell 13.8 per cent in dollar terms — the first contraction since 2009 — according to the Netherlands Bureau of Economic Policy Analysis’s World Trade Monitor.

Have you spotted what they have done? They have used the strong US Dollar as a measure of value whereas if you move to volume and the bottom of the article we see this.

Measured in volume terms the picture was not as grim, with global trade growing 2.5 per cent. But that fell below global economic growth of 3.1 per cent, extending a depressing trend in the global economy.

So we do have a concern albeit one of a lesser order that if world trade growth is slowing so presumably is world growth unless something is taking up the slack. Although this is a little awkward as much of it is  lower oil and commodity prices which may do just that! what we can say is that trade did fall in November and December as we wonder what happens next.


Even JP Morgan seems to have caught onto the mood music in this area.

Private equity is turning its back on shipping after a glut of funding over the last five years contributed to overcapacity in the industry, according to Andrian Dacy, the head of JPMorgan Asset Management’s Global Maritime business.

This overcapacity has been a contributor to the fall in the Baltic Dry Index as we wonder why JP Morgan is telling people to get out at something of a nadir for it. Furthermore at a time of ever shortening horizons it is very revealing when someone talks of a 25 year time period don’t you think? If we look at its values we see that the BDI has bounced a little recently to 325 but that it a fair bit lower than the 500s of last February and a world away from the 1200s of last August.

If we move on from the BDI wondering how the relative impacts of overcapacity and demand interrelate we can find some help in the calmer waters of the Harpex Index. It covers seven classes of ships and gives us some insight into trade of consumer goods. What it is telling us is that there has been a slowing in this area. The recent peak of of 546 in the early summer of 2015 has been replaced by a drop to 364 where the weekly reading has remained for the last few weeks (okay one 363 ..).

Thus shipping is in a bear market and at least some aspects are in a depression but for the wider economy the picture is muddied and mixed by lower oil and commodity prices.


It is sadly ironic with apologies to Alanis Morrisette that the central bankers who proclaim Forward Guidance are pumping out an atmosphere of fear right now.

The global economy risks becoming trapped in a low growth, low inflation, low interest rate equilibrium.  For the past seven years, growth has serially disappointed—sometimes spectacularly,

That was Bank of England Governor Mark Carney who at least has not flown out to Shanghai to lecture us again on the risks of global warming. But the man who told us that monetary policy was not “maxxed out” seems to have undertaken yet another U-Turn.

It is a reminder that demand stimulus on its own can do little to counteract longer-term forces of demographic change and productivity growth.

After a few paragraphs of waffle claiming reforms have happened Mark then provides ammunition for critics like me who have long argued that one of the moral hazards of what central bankers have done is as shown below.

In most advanced economies, difficult structural reforms have been deferred.

Well you and your colleagues financed that Mark with your monetary policies. Also we got a confirmation that he plans to push the UK Pound £ lower as he morphs into Mervyn King.

Currencies’ values fell, boosting competitiveness – the exchange rate channel.

Except as Mark gets lost in his own land of confusion this apparently does not work because it is a zero sum game.

But for the world as a whole, this export of excess saving and transfer of demand weakness elsewhere is ultimately a zero sum game.

We also got a confession that my critiques may have hit home, “several commentators are peddling the myth that monetary policy is “out of ammunition.”  Is “the only game in town” over?”. Feel free to join the comments section Mark with stuff as shown below so people can reply.

Low interest real rates have bought time by bringing forward demand to today from tomorrow…..However, the effect of QE on the wealth channel cannot last forever.

Also those who remortgaged on the back of his Forward Guidance may wonder about how they lost and the banks gained.

And determined central bank action and forward guidance put a floor under inflation expectations and bolstered sentiment – the confidence channel.

Ah is that the same confidence channel his scaremongering is now undermining or a different one? Oh and what about the banks.

To be clear, monetary policy is conducted to achieve price stability not for the benefit of bank shareholders.

Never believe anything until it is officially denied……..



19 thoughts on “What is really happening to world trade?

  1. Shaun
    How much has the drop in the price of oil be the cause of less world trade?

    I would also expect that shale gas/oil has had an effect, particularly for shipping.

    If the USA is now producing 4-5mbd of oil this must mean that it is not being traded or shipped (in the sense of world trade).

    Perhaps, the slow down in world trade is not so bad after all.


    • Hi Nick

      You are right about the US oil situation in that over the past few years there would have been less oil imports by her thus reducing that trade issue. The volume figures should allow for price shifts so what we have is a possible slow down in growth rather than as collapse. Where there have been drops is in trade with Latin America which has been particularly hit by the problems in Brazil and Argentina.

  2. Hi Shaun

    “Low interest real rates have bought time by bringing forward demand to today from tomorrow”

    This poses the obvious question: if tomorrow is now today what do we have for tomorrow? The answer seems to me to be less and less; by this time next year we’ll be bringing forward demand from 2025!

    We have record low mortgage rates; a very high PSBR (despite all the rhetoric about austerity); increasing credit card debt and a fall in the savings ratio; it is the BOE and the government that is propping up this increasingly rickety structure (and also despite what the GDP figures show).

    It is also amusing that MC is admitting that there are underlying structural issues in terms of demographics and productivity which go unaddressed; an implicit criticism of government. It appears the blame game is underway.

    The “Emperor has no clothes” moment is getting nearer and nearer.

    • Hi Bob J

      I agree that as soon as the going has got tougher Mark Carney has rushed to shout “it wasn’t me” a la Shaggy. That is not especially impressive and with George Osborne hinting at more austerity opens the way to an interest-rate cut or at least more monetary easing in the UK.

      As to jam today you can even see some of the pension changes as a way of bringing demand forwards although ironically the new employer schemes will offset that. What we do know is that the have forgotten the advice of the Queen in Alice In Wonderland.

      “The rule is, jam to-morrow and jam yesterday—but never jam to-day.”
      “It must come sometimes to ‘jam to-day,’” Alice objected.
      “No, it ca’n’t,” said the Queen. “It’s jam every other day: to-day isn’t any other day, you know”

    • “…it is the BOE and the government that is propping up this increasingly rickety structure” No, it’s the taxpayer doing the propping up, never lose sight of that

  3. The central bankers should know; low growth, low inflation & low interest rates are the direct consequences of their bankster actions.

    • Hi therrawbuzzin

      To paraphrase Mark Carney monetary policy has done a really good job. So good in fact that it needs help…….

      ” It is a reminder that demand stimulus on its own can do little to counteract longer-term forces of demographic change and productivity growth. ”

      So if he believes that why has he done it? Anyway the message from Shanghai or perhaps the Forward Guidance is one of fear and foreboding when as you say in your second comment apart from shipping we may in fact be seeing an actual rebalancing.

  4. “..However, the effect of QE on the wealth channel cannot last forever….”

    So we make pension pots available for the little guy to spend spend spend

    we make savings interest minus 0.1-3%

    we make current accounts the same

    we then bail in from both

    we then rename QE to something , QQE ,

    and with commodities getting cheaper so our buck buys more the economy still on life support interest rates , or is that “zombie” rates ( ZIRP )

    Still it is not enough

    Wow , we do we go from here ?


    Ps :still popcorn is available ….

    • Hi Forbin

      There are now suggestions that the Bank of Japan should buy the bonds of other countries so not the “QE for the people” but “QE for other people”. It gets even more Alice In Wonderland like with the proclaimed gain being pushing the Yen lower but of course Mark Carney is telling us that is a zero sum game. Poor old HAL 9000 in the film 2001 A Space Odyssey will feel that it is being lied to again and will be ejecting the other astronauts.

      As to BBC3 that is now lost to the TV world and gone somewhere online in another claimed improvement. Oh well….

  5. There is one positive possibility; Shaun alluded to it, but how much of a possibility it is, is arguable at least, let alone how positive.
    If a product is made, start to finish in one country, say China, and China was to rebalance itself from solely an exporter, to, at least in part, a producer-consumer, then this would have a huge impact on trade, as, not only would double/treble/quadruple counting drop, but the goods would not be seen to be traded at all.
    Of course, it’s a twat for shipping magnates.

    • Very perceptive comment. This could indeed be a big part of the explanation behind falling world trade. If it is, it nothing to worry about much unless, as you say, you are a shipping company.

  6. Shaun, I am typing this in sunny Tenerife which definitely gives one a more rosy view of things! The figures and analysis in your blog are very interesting but standing back from it all, I do wonder why we panic so much about small changes? The one thing I learnt in many years of business is not to over react to events or a small setback – life goes on, the sun still comes up tomorrow and we will survive.

    I have been catching up with a few folk who live here and run businesses and their feed back is fascinating. From businesses as diverse as hotels, restaurants and a yachting company, they all report the same trend in the Brits ( as distinct from other nationalities who behave rather differently). We over react to events due to the media forecasting Armageddon! In 2008/9 there was a major downturn in all their businesses and I suppose that could be expected as folk did not know what to expect. What is less expected is that In the run up to the last election business stopped almost overnight. People were cancelling sail training courses and forfeiting deposits due to worries about the outcome! I find this very strange behaviour but customers said they were very worried by what the media were saying at the time. Likewise holiday apartment bookings were cancelled. It then all picked up very quickly once the dust had settled and folk here enjoyed a bumper few months. Now there is the Brexit threat and it’s all happening again!

    I do wonder if our media are guilty of creating panic and often snatching defeat out of the jaws of victory. The last ‘recession’ was definitely a good example where the reality never supported the doom and gloom reports. I fear we may be about to do it all over again in the run up to the June referendum. Where is the sense of perspective in all of this? Global markets are over reacting to the possibility of a slow down. They can’t see the wood for the trees.

    • Hi Pavlaki
      Writing this in sunny SW Florida I share your sentiments. What happened to the ‘phlegmatic’ character of the ‘Brit’?
      The $ strengthened again today on the back of slightly better than expected Q4 numbers, most forecasts have annualised GDP at about 2.5% in Q1 2016. US equivalent of CPI is now 1.3% with ‘core’ at 1.7%, wage growth is picking up. Locally here construction has recovered, and there are signs of labour constraints.
      Yellen will get her ‘rationale’ to continue the rate increases, perhaps not in March but by June.
      As an ex-pat resident in France, I am still trying to find anything that a Brexit would substantially change. Most individual relationships would be ‘grandfathered’ under over-arching Treaties, and the effect on business would surely be marginal. I find it impossibly unrealistic to believe UK/EU relationships would be significantly different to continuing EEA membership or in-extremis the bi-lateral relations with Switzerland.
      Any way, as Forbin would say, I am too busy enjoying the popcorn whilst being entertained by the on-going nightly comedy that is the Republican primary debates. Trump versus Cruz !

      • Hi Guys

        I think you have a point that the media and in particular the social media world has shortened attention spans and created a drama out of things. Maybe the weather is partly to blame as it was cold in London today on a Boris Bike! Mind you the poor old weather takes too much blame so it is nice to see you two give it a bit of credit 🙂

      • “Most individual relationships would be ‘grandfathered’ under over-arching Treaties,” – that’s a very very big assumption to make. Whilst business leaders will campaign for that kind of agreement, EZ politicians will be in a fury at the idea of being “rejected” and they will make sure the UK suffers no matter what the financial cost via tariffs which will likely be imposed 5 years down the road.

        EZ trade with the UK is a tiny percentage of EZ exports so little damage done EZ wide (although on an individual company basis it will be a different story). The same cannot be said of UK exports to the EZ. If the UK votes out I fervently hope I am proved wrong but unfortunately I know I will be proved right. The day the UK votes “out” is the day I commence plans to emigrate…..

  7. economic growth – much of it is an illusion.

    Economic growth from more expensive housing is fake. It is just wealth transfer to home owners who are mostly elderly.

    Doing more with less money isn’t measured as growth. For example if we were to implement widespread use of grid active water heaters and freezers – we could reduce electricity generation. The Rocky Mountain Institute estimate that grid interactive water heaters could save the US nearly $1.4 billion in avoided generation capacity.

    And need I say that reduced crack, heroin usage is a social good, a quality of life improvement and also a GDP reduction. Their statistics are of dubious value and their justifications for continued QE are best expressed by Sting “Their logic ties me up and rapes me”

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