Forbes: Global trade fell about 12% in 2009. What caused this precipitous fall? How does global trade look this year and what can be done to increase global trade?
Lamy: The picture this year is much brighter, but you are right, last year was a bad year for trade. There were two things that lead to the sharp deterioration of trade in 2009. By far the most significant factor was the collapse in demand and business investment. When the world economy contracts, there will be an impact on trade as well, because trade is merely the conveyor belt between supply and demand. When demand falls off, so will trade. In fact, trade will contract even more due to the multiplier effect, brought about by vertical supply chains, in which the value of many products is counted more than once as inputs and assembled products cross borders.
The other reason behind this sharp contraction was the drying up of trade finance. Many companies, particularly in the developing world, found it difficult to obtain this banking lending, despite the fact that it is among the safest and easiest forms of finance. But with a global credit crunch in place, all forms of finance were affected. After the trade finance package mobilized by the London G20, this area of finance is returning to normal but there are areas in which the problem persists, namely central Europe, Central Asia and Africa.