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

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 f aster than global GDP and is therefore more important now than 60 years ago

I n 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 (1st & 3rd largest economies): new disputes: Chickens, tires, auto products, paper

Rise of Protectionism

2

Past 20 years; China, I ndia & 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. (I MF. J an 2008)

China double-digit growth f or past several years; I ndia 9%; Russia 7-8%. Brazil 5-6%; (the BRI Cs)

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)

BRI Cs

3

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

Financial CrisisFinancial Crisis

4

GDP Growth Rates Head South

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

% Real Economic Growth

Advanced 1.7%

Emerging 5.9%

World 3.5%

5

US Growth Goes Negative6

China Slows But Stays Above 6%

7

China’s GDP by Expenditure (2007)

Consumption39%

Investment39%

Net Exports22%

Source: CEIC

China’s growth very important for world economy

8

Savings Rates Widely Different

9

India Doing Well10

Brazil More Unstable11

Russia- Steady Growth then 0ff

the Table12

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

World Real GDP Growth vs Trade Volume in Goods & Services

Trade

GDP

13

Million $

Source: US Bureau of Economic Analysis

U.S. Current Account Balance

GDP= C + I + G + (X – M)GDP (Prodn) - (X-M) (trade bal.) = C + I + G (absorption)

14

US DOLLAR INDEX

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

15

Recovery –when, how fast16

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.