Foreign Trade Posed to Boom

Look for strong growth of our exports and imports in the coming year.

The IMF has an interesting observation in it's latest World Economic Outlook.  Talking about total international trade volume around the world, they find:

The survey results suggest that the downturn in trade largely reflected falling demand rather than a lack of trade finance.

International trade volumes fell due to the recession.  What about the recovery?

Recent work by Freund (2009) shows that the responsiveness of trade to GDP has increased over time, with elasticities of more than 3.5 during this decade …

That elasticity answers the question, when the world's GDP goes up by one percent, by how many percentage points does international trade increase?

I was surprised when I researched international trade for Businomics that trade was more variable than the underlying economy.  I learned that the particular products that tend to be traded are in the more variable parts of the economy.  Among consumer goods, for example, we import relatively little of the staples (toilet paper) and relatively more of the big-ticket discretionary items (cars).  The same is true of business purchasing. Companies import relatively few staples and paper clips, but relatively more big factory equipment.

In addition, many companies keep local vendors in their supply chain, but use imports to handle large swings in volumes.

Looking to the economic forecast, even moderate growth in the recovery will send total trade, both exports and imports, soaring.