One of these trends that must be addressed is international trade and its role in globalization around the world and in Turkey. Two studies on the role and characteristics of international trade highlight its importance in globalization. One of these studies, the 256-page “World Trade Report 2008: Trade in Natural Resources,” was issued by the World Trade Organization (WTO) on July 23. The other one, “World Trade Indicators 2010: Trade Under Crisis,” will be published by the World Bank next month. This week and next I will discuss the World Trade Report, which not only reviews recent trends in international trade flows and trade policies but also focuses on, as its special theme this year, natural resources trade, raising critical issues about export restrictions based on resource nationalism. In a later column I will review the World Trade Indicators report, which is a more narrowly focused study that is richer in empirical detail about trade.The first and shorter of the two sections of the World Trade Report reviews major trends in international trade during the 2009-2010 period. The global economic and financial crisis in 2008 and 2009, which resulted in world GDP contracting by 2.3 percent in 2009 for the first time since the 1930s, caused the sharpest drop in world trade in more than 70 years. After slowing down from 6.4 percent annual growth in 2007 to 2.1 percent in 2008, significantly below the 10-year average growth rate of 4.1 percent, world merchandise trade contracted in volume or real terms (i.e., excluding the effect of prices and exchange rates) by an unprecedented 12.2 percent in 2009. The extraordinary decline in world trade in 2009 was even worse in value terms, measured in US dollars, at 22.6 percent, reflecting the plummeting prices of oil and other primary products. Although world trade resumed its growth in the second half of 2009, the recovery through the first quarter of this year was not enough to restore trade to its pre-crisis level. As for Turkey’s total trade value, after expanding at an average annual rate of 25.6 percent between 2002 and 2008, it contracted by 27.2 percent in 2009. It has rebounded impressively this year, with a growth rate of 25.5 percent between January and June, reflecting the remarkable performance of the Turkish economy in its rapid recovery from the deep recession.
The major reason behind the 2008-2009 world trade collapse was the sharp contraction in global aggregate demand in the Great Recession. The contraction in demand was exacerbated by its global synchronization, the product composition of the falling demand, the scarcity of credit for financing trade transactions, especially for small and medium-sized enterprises during the financial crisis, and the recent phenomenal growth of global supply chains. Through global supply chains, reflecting the fragmentation of production that has arisen from stages-of-production-based comparative advantage, goods in process cross national borders several times before they arrive as finished goods at their final destination. The faster spread of global supply chains causes greater double-counting in merchandise trade statistics. So both the expansion and contraction of world trade are exaggerated by global supply chains. The plunge in world trade would have been far worse if the much-feared beggar-thy-neighbor protectionism had run amok during the financial and economic crisis.
International trade, the oldest and the most basic form of globalization, has expanded consistently faster than world output, as evidenced for the last decade by the figure below. Output growth has a magnified effect on trade: when output grows trade grows faster than output, but when output contracts trade contracts more than output. One of the reasons for this magnified relationship is that although consumer durables and capital goods account for a relatively small share of global output, they comprise a relatively large share of world trade.
The second and much longer section of the World Trade Report, as an excellent theoretical and empirical survey, focuses on trade in natural resources, defined as “stocks of materials that exist in the natural environment that are both scarce and economically useful in production or consumption, either in their raw state or after a minimal amount of processing.” Since agricultural products are cultivated rather than extracted from the natural environment, they are excluded from the definition of natural resources used in the report. That definition includes fuels, forestry, mining and fisheries that provide basic inputs to most economic activities and whose extraction and use affect the environment. (Of course, increasingly fisheries are becoming fish farms as part of aquaculture that require their products to be considered as similar to agricultural products.) Some of them, such as oil and natural gas, are finite in supply, i.e., non-renewable, whereas others, such as forests and fisheries, are renewable but also potentially exhaustible if not properly managed.
Next week I will discuss in detail the special characteristics of natural resources trade, focusing on the critical issues raised by resource nationalism based export restrictions.
