Downturn Choking Global Commerce
Chinese Exports Fall Furthest in 7 Years

By Anthony Faiola and Ariana Eunjung Cha
Washington Post Staff Writers
Thursday, December 11, 2008

Sharply lower consumer spending in the United States and other high-income countries is stalling global trade, causing a surprise downturn in exports from China that is dramatically slowing its economy and rippling through other countries that rely on international commerce.

With recessions hitting the United States, Europe and Japan at the same time, China yesterday said its November exports took their biggest dive in seven years. Weak holiday spending is taking a particularly hard toll on toymakers: Two-thirds of China's small-toy exporters closed in the first nine months of 2008, according to government statistics. At the same time, tight credit and falling global demand are setting off the first decline in world trade in a quarter century, touching off a wave of job losses in rich and poor countries alike.

The drop in trade is both sharper and faster than many analysts had predicted only weeks ago, with freight lines that were sailing full this summer now slashing prices by as much as 90 percent as cargo traffic plummets and unsold goods pile up at ports from Baltimore to Shanghai. The World Bank this week said global trade is set to fall by 2.1 percent in 2009, marking the first decline since 1982. The drop is contributing to a more dire outlook for the world economy, which the World Bank said is close to falling into a global recession.

The slowdown illustrates how globalization, which fed rapid growth during times of plenty, can quickly turn against nations during times of bust. Depressed car sales in the United States, for instance, are spreading through the global supply chain, eliminating jobs for contract auto workers in Japan and laborers in South Africa who mine the metals used in car parts.

The impact on China, one of the rare lights in an otherwise gloomy global economy, is particularly troubling. Beijing announced yesterday that its November exports dropped 2.2 percent after a 19.2 percent surge in October. Imports took an even steeper drop, falling 17.9 percent. Analysts now say growth there is slowing to its lowest level since 1990, curbing Chinese demand.

Reversing Course

That is bad news for the United States and other high-income countries that were counting on sales to China and other emerging markets to help combat recessions at home. Earlier this year, an array of U.S. exports including Boeing jets and Caterpillar tractors were at least partially offsetting weak domestic demand. U.S. trade data to be released today are expected to show another jump in October exports. But analysts say those numbers do not reflect industry estimates that U.S. exports reversed course in November as the financial crisis deepened worldwide.

"You can essentially say the U.S. export boom is over," said Brian Bethune, chief U.S. economist for IHS Global Insight.

In recent weeks, the World Bank has had to step in with loans to exporters in developing countries because the global credit crunch dried up short-term trade financing needed to ship goods overseas. In one case, World Bank officials say, a Brazilian company had an overseas buyer for a large shipment of soy beans, but they rotted on the docks because the exporter could not secure the funds for shipping and insurance.

"Global trade is reversing course because it is a function of industrial production, and we're seeing the biggest coordinated slump in industrial production since the early 1930s," said Philip Suttle, director of Global Macro Analysis at the Institute of International Finance. "In the old days, you'd get weakness in one part of the world, and it would take three to six months to impact another part. But now, everybody is so interconnected through trade that the impact is happening instantaneously."

Sharp Slowdown

The sharp slowdown has caused commodity prices to plummet, ending a historic five-year boom in prices for oil, food and metals. That is helping importer nations like the United States, where the steep drop in gas prices is providing a market-based fiscal stimulus to Americans by allowing them to save cash at the pump.

But in South Africa, the fall in prices for commodities like platinum -- an industrial metal now 50 percent off its March peak as the auto industry, which uses it for car parts, suffers deeply depressed sales -- has caused mining companies to issue layoff notices to thousands of workers hired in recent years.

The biggest cuts in South Africa are likely to be at Lonmin, the world's third-largest platinum mining firm, which has announced plans to lay off 5,500 workers at two of its mines. The effects of such cuts will radiate far beyond the mines, analysts and union officials say.

The salary of just one average miner in South Africa -- about 30 percent of whom are migrants from nearby nations such as Swaziland and Mozambique -- supports eight other people, union officials say.

"If you then have a large number of mining job losses, then the rest of the economy of such a town also suffers badly," said Jaco Kleyhans, a spokesman for the Solidarity labor union in South Africa.

Declining world trade is taking the wind out of the global export boom that brought trillions of dollars worth of investment and trade to nations like China and India, helping millions rise out of poverty in recent years. In India, thousands of textile workers are losing their jobs as global clothing sales drop and experts forecast even gloomier sales for 2009.

Lost Promises

It is robbing globalization's promise of prosperity from people like Deepak Kumar, a 35-year-old weaver who had been earning a relatively princely $70 a month working in a textile plant 50 miles north of New Delhi. After four years on the job, he was laid off as the company shed 30 percent of its workforce due to declining sales over the past three months. Hoping for a pickup in work, he still goes to the factory every day.

"I sit outside the gate with other sacked workers from 9 in the morning 'til dusk," he said in a telephone interview. "Who knows when the locks of destiny will open again?"

Many nations such as China are turning to government spending programs, such as building new bridges and dams, to keep their economies growing. But the effect of such spending could take months to be felt in the real economy.

The government in Beijing has taken aggressive measures to try to spur trade, such as re-introducing tax rebates for exports and helping banks increase lending. But they have thus far failed. At the same time, efforts to tap the domestic market in emerging nations are proving to be difficult. November car sales were down 37 percent in the United States, and also down by 10 percent in China, 15 percent in India and 30 percent in South Africa, according to the World Bank.

The slowing of growth in major emerging markets -- which on average are projected to grow 4.5 percent next year, down from earlier projections of 7 percent -- could spark more unrest in countries such as China.

Worker Unrest

Wang Long, 20, was one of millions of rural workers in China who migrated to the southern city of Dongguan a few years ago to work in a factory that made goods for export. At the beginning of November the factory, which used to employ more than 10,000 workers, closed down. Wang and his colleagues took to the streets on Nov. 3 to demand back wages. He was detained during the protest and held for 10 days, during which the government agreed to give each worker the equivalent of two months' pay. But by the time he was released from custody, the offer had expired and he could not get the money. He has returned home to Guizhou and is living with his parents.

"I don't have a lot of savings, and it's a difficult time right now to find a job. I don't know what to do next. Even the phone I'm using is my dad's phone," Wang said. He said he considers himself lucky. Some of his friends don't even have a place to live.

Falling trade is rebalancing the flow of export wealth that years of diplomatic wrangling failed to change, cutting deeply into the trade surpluses long enjoyed by nations such as Japan while reducing the trade deficit in the United States.

In theory, the sharp drop in the U.S. trade deficit would generate more jobs as domestic manufacturers pick up the slack left by declining imports. Yet analysts say that is unlikely to happen now. The reason many U.S. manufacturing jobs moved overseas in the first place is because products could be made more cheaply abroad. If consumers won't buy a $600 flat-screen TV made in China, chances are they now won't buy a more expensive one made in the United States.

Experts also predict that the massive fiscal stimulus plan being considered by Congress could rekindle American demand for imports like concrete and steel, even as U.S. exports remain weak. That could reverse the gains made in the U.S. trade deficit so far this year.

Cha reported from Beijing. Correspondents Karin Brulliard in Johannesburg, Blaine Harden in Tokyo, Rama Lakshmi in New Delhi, and Joshua Partlow in Rio de Janeiro and special correspondents Shannon Smiley in Berlin and Akiko Yamamoto in Tokyo contributed to this report.

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