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The Great Recession and the Collapse of International Trade

By Karen Lynch

Ten years after the start of the Great Recession, observers say that the global financial crisis has left an indelible imprint on the business of international trade. Is it any wonder? "By the autumn of 2008, global output, employment, and trade were in free fall as financial markets around the world seized up in dysfunction and credit ceased to flow," according to one retrospective.1 "It was deep, synchronous, and global," said another.2

While international trade did not grab the biggest headlines in 2008, it crashed hard. "Global trade collapsed at a pace not seen since the Great Depression, raising concerns in some quarters that the globalization of the past three decades was going to be reversed," said the Federal Reserve Bank.3 "Indeed, the drop in trade during the crisis far outpaced the decline in global GDP," according to an academic paper, which cited causes including a fall in demand, a rise in protectionism, a domino effect within global supply chains, and a curtailing of exporters' access to finance.4


Recent statistics show a tentative return to normal, in terms of global trade volume and value. But it is a "new normal." "It is increasingly clear that there will never be a return to the ‘old normal,'" according to a paper from the Chatham House, a public policy research center.5


On the one hand, businesses have changed the way they finance and conduct international trade, including the rise of open account trade and digital trade. On the other hand, the Great Recession has fanned protectionist and anti-globalization sentiments. "Rising trade tensions continue to pose risks," the World Trade Organization (WTO) said in August 2018, projecting a third-quarter loss of momentum in trade recovery.6 And the wild card, for many, is the potential for digital disruption to global trade flows.7


Global Trade Crisis: The Numbers


The trade crisis can only be understood in the context of the larger global financial crisis and ensuing recession, in which lost growth has been estimated at over $10 trillion – more than one-sixth of global GDP in 2008.8


In the decades before the Great Recession, "the world economy seemed to be on an irreversible course of ever-deepening globalization," McKinsey analysts said. "Global trade expanded nearly eight-fold in the 1990s and 2000s, and doubled as a share of GDP."9


Then, in 2009, the volume of goods exported worldwide plunged 12 percent and services trade declined 9 percent, causing global GDP to drop 2 percent.10 What ensued was characterized by the International Chamber of Commerce as "the most difficult years in living memory for business."11


"Firms across industries were required to deal with huge demand-supply mismatches caused by collapsing demand," according to supply chain specialists.12 At the same time, "trade finance markets were subject to severe shortages," wrote the WTO.13 Particularly for small businesses and developing countries, there is a persisting global trade finance shortfall estimated at $1.5 trillion.14


Subsequent years saw false starts and setbacks. "Debt crises and geopolitical tensions intensified in 2014, causing world trade to slow to a crawl," the WTO said. "In value terms, world merchandise trade growth averaged just 1 percent per year from 2012 to 2014."15


As the recovery began to unfold, international bodies such as the G20 rose to the challenge of mitigating systemic risks, protectionism was relatively muted amid bilateral and multilateral trade negotiations, banks that had pulled back from financing trade recovered their footing, and demand flourished anew. Open account trade (shipping goods before payment is due) and supply chain finance supplanted traditional trade finance over the years, rising to account for roughly 80 percent of trade,16 and larger buyers began creating financing programs to ensure the health of their own supply chains. Among other trends – related or unrelated to the crisis – global e-commerce platforms emerged, providing international trade, finance, and logistics support to small companies, as well as instantaneous worldwide marketing.


By 2017, the ratio of trade growth to GDP growth returned to its historic average of 1.5 – meaning that international trade rose 50 percent faster each year than the world economy as a whole, thus garnering an ever-increasing share of global GDP – up from an average of 1 recorded since 2009, the WTO reported. Growth in the international trade of goods reached 4.7 percent, close to the average rate of 4.8 percent since 1990 and well above the 3 percent average in the immediate post-crisis years.17


North America recorded 4.1 percent growth in merchandise trade volume in 2017, and 7.3 percent growth in value, compared to Asia's 8.1 percent growth in volume and 13 percent growth in value.18 (Generally, though, advanced economies' importance in the global economy has shrunk from 69 percent before the global financial crisis to 60 percent of current global GDP.19)


Today, however, the WTO continues to warn of clouds on the horizon and recently reported that global merchandise trade growth has been softening – down 0.3 percent, while forecast to end 2018 at 4.4 percent.20 In addition, "many of the direct effects of the crisis still remain active concerns," such as global debt, according to the Chatham House.21


How to Manage the Next Crisis in International Trade?


As one political economist put it: "There's always another financial crisis."22 And so companies engaged in international trade are often advised to prepare for this eventuality.


"In an ideal world, every company would enter a recession led by a team of grizzled executives who could draw on their experiences of past downturns to guide it through the current one," McKinsey & Company analysts said. "Many companies don't, however, and even for those that do, it can be difficult to rise above the crisis to ponder the lessons of history."23


Studies of companies that fared better than most during the Great Recession underscore common characteristics, including a highly regarded brand, free/inexpensive offerings, and deeper pockets than their competitors. "During a brutal economic downturn, nothing can replace a large bank balance," according to 24/7 Wall St.24


The accuracy of strategic planning becomes more critical during a crisis, McKinsey analysts said. "False assumptions about the pace, scale, and timing of growth may slow progress in good times but could be fatal now."25


Tactical advice for small businesses includes identifying "cash bleeds," where a business may be losing money unnecessarily, and closing unprofitable business lines to focus on the profitable ones.26


In the end, despite ongoing uncertainties, international trade offers opportunities for growth, as highlighted in a recent Wall Street Journal report that U.S. exporters are today growing faster than companies that do most of their business at home.27



International trade collapsed even more dramatically than the general economy during the Great Recession, but has been recovering and evolving to a "new normal." A decade later, despite ongoing uncertainties, companies are finding new ways to make progress and profits in global trade.

Karen Lynch - The Author

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.


1. “Ten Years after the Global Financial Crisis: Lessons Learned, Opportunities Missed,” Global Policy;
2. “The Great Recession and International Trade,” Policy Options;
3. “The Financial Crisis, Trade Finance, and the Collapse of World Trade,” Federal Reserve Bank of Dallas;
4. “Exporters in the Financial Crisis,” National Institute Economic Review,
5. “The Lasting Effects of the Financial Crisis Have Yet to Be Felt,” Chatham House;
6. “WTOI Suggests Trade Momentum Softening Further in Third Quarter of 2018,” World Trade Organization;
7. “Ten Years after the Global Financial Crisis: An Introduction,” Global Policy;
8. “The Lasting Effects of the Financial Crisis Have Yet to Be Felt,” Chatham House;
9. “Navigating the New Realities of Global Trade,” McKinsey & Company;
10. International Trade Statistics 2015, World Trade Organization;
11. “Business and the World Economy,” International Chamber of Commerce;
12. “5 Lessons for Supply Chains from the Financial Crisis,” SupplyChain24/7;
13. Trade Finance and SMEs, World Trade Organization;
14. Global Trade – Securing Future Growth, International Chamber of Commerce;
15. International Trade Statistics 2015, World Trade Organization;
16. Global Trade – Securing Future Growth, International Chamber of Commerce;
17. World Trade Statistical Review 2018, World Trade Organization;
18. Ibid.
19. “The Lasting Effects of the Financial Crisis Have Yet to Be Felt,” Chatham House;
20. “WTOI Suggests Trade Momentum Softening Further in Third Quarter of 2018,” World Trade Organization;
21. “The Lasting Effects of the Financial Crisis Have Yet to Be Felt,” Chatham House;
22. “Political Economy of the Global Recession and the Eurozone Crisis,” Macro Musings;
23. “Mapping Decline and Recovery across Sectors,” McKinsey & Company;
24. “Nine Big Companies that Grew through the Recession,” 24/7 Wall St.;
25. “Mapping Decline and Recovery across Sectors,” McKinsey & Company;
26. “How to Handle a Financial Crisis at your Small Business,” Rabid Office Monkey;
27. “U.S. Exporters Drive Earnings Growth Despite Trade Worries,” Wall Street Journal;

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