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Worldwide trade peaked in 2007
Howard Richman, 9/17/2015

Up until 2007, global trade was expanding. The trade surplus countries were lending money to the trade deficit countries so that the trade deficit countries could buy their products. But imbalanced trade cannot grow forever. Eventually the trade deficit countries become bad credit risks, so the system falls apart. Most economists haven't yet figured this out even though we explained it in our 2008 book and again in our 2014 book. They think that all you need to do in order to enhance worldwide trade is to lower trade barriers. They don't understand the importance of balanced trade.

They are just starting to notice now that world trade has been in decline since 2007, but they can't explain why. In the September 14 Wall Street Journal, William Maudlin began (Worries Rise Over Global Trade Slump):

A sharp drop in global trade growth this year is underscoring a disturbing legacy of the financial crisis: Exports and imports of goods are lagging far behind their pace of past expansions, threatening future productivity and living standards.

For the third year in a row, the rate of growth in global trade is set to trail the already sluggish expansion of the world economy, according to data from the World Trade Organization and projections from leading economists.

Before the recent slump, the last time trade growth underperformed the rate of an economic expansion was 1985.

“We have seen this burst of globalization, and now we’re at a point of consolidation, maybe retrenchment,” said WTO chief economist Robert Koopman. “It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should.”

Since rebounding sharply in 2010 after the financial crisis, trade growth has averaged only about 3% a year, compared with 6% a year from 1983 to 2008, the WTO says.

Few see any signs that trade will soon regain its previous pace of growth, which was double the rate of economic expansion before 2008. In 2006, global trade volumes grew 8.5%, compared with a 4% expansion in global GDP.

This year the WTO is expected to cut its 2015 trade forecast a second time after a sudden contraction in the first half of the year—the first such decline since 2009.

“It’s fairly obvious that we reached peak trade in 2007,” said Scott Miller, trade expert at the Center for Strategic and International Studies, a Washington, D.C., think tank.

In short, balanced trade can grow forever. Imbalanced trade cannot.

[Hat tip to zerohedge.com.]

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    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]