Thursday, September 10, 2009

The Collapse of Trade

Why has global trade fallen at a faster rate than global GDP? A variety of economists look at the reasons here. Several single out the increased importance of global supply chains. Barry Eichengreen puts it best:

When a U.S. household decides not to buy a
$40,000 Cayenne sport utility vehicle from Germany,
German exports to the United States go down by $40,000,
but Slovakian exports to Germany go down by perhaps
half that amount, since while the final assembly is done in
Leipzig, the coachwork is done in Bratislava.

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