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Trade expansion can be a low-cost stimulus


Director-General Pascal Lamy of the World Trade Organisation gave a speech in Shanghai last Friday in which he emphasized the importance of trade to the worldwide recovery.

He said: “Trade can be thought of as a stimulus package available to both developed and developing countries.  It has to be part and parcel of the economic recovery effort for growth to be sustainable. As I already mentioned, our forecast for 2010 currently shows trade growing by about 10 per cent, around 11 per cent for developing economies and around 7 per cent for developed ones.  With the way things are going so far in the global economy, this number may be too small.  We will revisit the forecast in a couple of months.  

“I heard recently an argument according to which during the recovery it would be nonsense to assume that everyone can increase exports.  I am sorry.  Of course, everyone can increase exports if imports also grow!  Thus making the overall resources allocation more efficient which means growth for all.  This is why trade expansion can be a low-cost stimulus”

The only problem with this argument is that consumer spending will be under intense pressure in countries such as the UK over the next two to three years. If consumers are reluctant to pay for imported goods then the “increase imports and exports and all will be better off” argument, is not going to work out. Too many countries will be looking for a stimulus in exports to boost recovery at a time when home conditions are not conducive to increased imports.

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Posted in economic growth, International Trade

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