The Mirage of Lower Trade Imbalances
By FLOYD NORRIS
The meeting of the G-20 in Seoul, South Korea, this week was dominated by concerns about world trade, which has rebounded after falling sharply during the credit crisis and global recession. With the rebound, trade deficits and surpluses, which had appeared to be falling, have begun to rise again, setting off complaints from numerous countries that others are trying to hold down the value of their currencies to gain a trade advantage.
The apparent shrinkage of trade imbalances, usually presented as a percentage of gross domestic product, was in significant part a mirage caused by the plunge in trade. After all, if world trade went to zero, so would surpluses and deficits.
Looked at in another way, by comparing the value of each country’s exports with its imports, the declines were not nearly as sharp, and in some cases vanished altogether. Germany’s balance of payments — a figure largely made up of the trade balance — fell from 8 percent of G.D.P. in late 2007 to 3.8 percent in early 2009, for example, only to recover to 4.4 percent in the latest data. But, as the accompanying charts show, its total exports were about 20 percent larger than its imports throughout the period.
Similarly, the United States’ balance of payments deficit fell to as low as 2.4 percent of G.D.P., less than half what it was a few years earlier. But the improvement was far more modest when looked at in terms of trade. The country exported 41 percent less than it imported in 2007, compared with 34 percent less in the most recent 12 months.
As can be seen in the charts, Germany may have benefited over the last decade from the fact that other members of the euro zone were becoming less competitive in exports. France was exporting more than it imported when the decade began; now its exports are running 12 percent behind imports. Italy went from relatively small surpluses to relatively small deficits.
Not shown are some of the peripheral members of the euro zone, which have been robbed of competitiveness by inflation. Greek exports are 60 percent lower than imports, and that ratio has improved lately only because it is less able to afford imports. The figures for Portugal and Spain are 36 percent and 23 percent, respectively. Had there not been a euro, it is probable that the value of the German mark would have risen relative to that of other European nations, reducing the competitive advantage Germany now enjoys.
There were some significant changes in trade ratios during the downturn. Japan’s trade surplus briefly vanished, although its export/import ratio has recovered in recent months. China’s gap did narrow, although it now seems to be rising again. India’s substantial trade deficit widened, and its ratio of exports to imports is now lower than that of the United States.
There has been little talk of that, however. In part, it is because the figures shown are for trade in goods, not services, an area where India is strong. But it also reflects the fact that India has been importing capital as it grows, offsetting the trade numbers.
With much of the developing world now growing more rapidly than the developed countries, there has been a rush of capital into many of them, touching off worries that their currencies will become overvalued and their terms of trade worsen. That appears to have happened in Brazil, where the rising value of the real has been accompanied by a sharp reduction in the export-import ratio. Some countries are beginning to impose various forms of capital controls in an effort to keep that from happening to them.
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