What’s Driving the Trade Collapse?
The measured trade-cost rise is estimated to be similar in the two events, yet tariffs have not risen in today’s crisis in anywhere near the extent to which they did in the 1930s. This seems to indicate that a good fraction of today’s trade drop is due to non-tariff trade policy and other trade frictions – e.g. evaporating trade credit, credit constraints in the market for consumer durables, and other reported changes in policy have been of equal magnitude (see Ferrantino and Larsen 2009 on the latter).The best evidence we have on new trade barriers, the Global Trade Alert initiative, does not suggest a rise in measured protectionism anywhere near that observed in the 1930s. There must be something else driving the rise in trade frictions. Perhaps the protection is so murky that even GTA cannot document it? Perhaps the trade credit problem is the culprit and thus more important than many argue (Chauffour and Farole 2009)?
Another way to interpret this finding is that the decline in trade is not due to either of the traditional factors that we think as affecting trade—technology and trade policies.
