AGRICULTURAL TRADE IN THE BROADER GLOBAL CONTEXT

Lecture 4- AHEED Course “International Agricultural Trade and Policy” Taught by Alex F. McCalla, Professor Emeritus, UC Davis.

March 31 ,2010, University of Tirana, Albania

1

Trade and Growth –Positive Relationship

2 Rise of Protectionism

  Openness to trade is associated with greater economic growth. Trade & investment have driven a large share of global economic growth – So TRADE MATTERS! Since 1948 on GATT trade has grown much faster than global GDP and is therefore more important now than 60 years ago  In the most recent G20 summit trade was a big part of the discussion.  World econ growth has turned negative in past year ( -3.8% growth in G7 advanced countries in 2009)  US/China trade tensions (1 st & 3 rd largest economies): new disputes: Chickens, tires, auto products, paper

BRICs

 Past 20 years; China, India & Russia have become forces in the world economy; emerging market countries have been the main recent driver of global growth in PPP terms—led by China, which alone contributed nearly 27 percent to global growth in 2007. (IMF. Jan 2008)  China double-digit growth for past several years; India 9%; Russia 7-8%. Brazil 5-6%; (the BRICs )  

3

  Globalization – merchandise trade increased by 3 X in last 16 years.

services trade growth, 1990-2005: doubled (2x) manufacturing trade growth, 1990-2005: tripled (3x) agricultural trade growth, 1990-2005: doubled (2x)

Financial Crisis

4

 US, EU, China & Japan account for 50% of global GDP; 70% of global financial flows; & 2/3rds of global saving.

 Because of integrated financial markets, the banking problems in US spread quickly to Europe  But China & Japan were not directly exposed to the toxic assets originating in the US  Instead, the collapse of world trade hit the export oriented economies of China & Japan

5

GDP Growth Rates Head South

% Real Economic Growth 10 8 6 4 2 0 -2 1999 -4 -6 2000 2001 2002 2003 2004 Emerging 5.9% World 3.5% 2005 2006 2007 2008 Advanced 1.7% 2009 Advanced economies Emerging and developing economies source:

http://imf.org/external/datamapper/index.php

World

6

US Growth Goes Negative

7

China Slows But Stays Above 6%

8

China’s GDP by Expenditure (2007) Net Exports 22% Consumption 39% Source: CEIC Investment 39% China’s growth very important for world economy

9

Savings Rates Widely Different

10

India Doing Well

11

Brazil More Unstable

12

Russia- Steady Growth then 0ff the Table

13

15 World Real GDP Growth vs Trade Volume in Goods & Services Trade 10 5 GDP 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 -5 -10 -15 source:

http://imf.org/external/datamapper/index.php

U.S. Current Account Balance

14

Million $ 200 000 0 -200 000 -400 000 -600 000 -800 000 -1 000 000 2000 2001 2002 2003 2004 2005 2006 2007 2008 Balance Current Account Balance: Goods Balance: Services GDP= C + I + G + (X – M) GDP (Prodn) - (X-M) (trade bal.) = C + I + G (absorption) Source: US Bureau of Economic Analysis

US DOLLAR INDEX

15

Source http://www.fxstreet.com/rates-charts/usdollar-index/

Recovery –when, how fast

16

     There seems to be an emerging consensus that we have reached the bottom although unemployment remains high in advanced countries.

All agree it will happen first in middle income developing countries eg China, Brazil, next in other developing countries, last in advanced countries.

Most agree that will be slow recovery in countries like US where everybody’s confidence has been shattered. Savings rates in G7 will probably rise meaning resumption of consumer spending will be delayed.

Implications for agricultural trade are not clear especially given the recent price spike in commodity prices, the topic of next lecture.

More when we review

Economist”s

projections in last lecture.