WTO Cites Auto Industry Among Hardest-Hit Sectors in Annual Global-Trade Report

The automotive industry is one of the sectors hardest hit by the global recession, the World Trade Organization says in its annual assessment of global trade.

The collapse in global vehicle demand brought on by the biggest economic downturn in decades will drive export volumes down roughly 9% in 2009, the biggest contraction since World War II, the report says.

Economic contraction in most of the industrial world and steep export declines already posted in the early months of the year by most major economies, particularly those in Asia, makes for an unusually bleak 2009 trade assessment, the WTO says.

Japan’s exports of automotive products worldwide fell 18%, while exports to the U.S., exclusively, dropped 30% in fourth-quarter 2008.

The report quotes the European Automobile Manufacturers Assn. as saying February’s passenger-vehicle registrations slid 18% in Europe, compared with year-ago. “The new (European Union) member states of Eastern Europe were hardest hit, with a drop of 30%, while Germany was a conspicuous exception with an increase of nearly 22%,” the report says.

“Sales in Germany were boosted by a €2,500 ($3,409) scrapping bonus provided by the German government to customers who replaced an older vehicle with a new one. The scheme is intended to at least partly counteract slumping foreign sales of German cars.”

The WTO says the German industry association Verband der Automobilindustrie reports the number of vehicles exported in February plunged 51%, compared with prior-year, while imports tumbled 47%.

WTO Director General Pascal Lamy warns of trade protectionism.

The trade contraction in developed countries will be particularly severe, with exports falling 10% this year, the report says. In developing countries, which are far more dependent on trade for growth, exports will shrink 2%-3% in 2009.

“Since the recession began to take hold in the fourth quarter of 2008, there has been little cause for optimism in the outlook for trade in 2009,” the report says.

“Falling stock markets and housing prices have also administered negative shocks to wealth in the U.S. and elsewhere, making households unwilling to purchase durable goods such as automobiles while they attempt to rebuild their savings.”

The WTO says vehicle trade declines are larger than in past economic slowdowns, inpart because fall-off in demand is more widespread than before, as all regions of the world economy have slowed at once.

A second reason for the magnitude of the decline relates to the increasing presence of global supply chains in total trade, the report says.

“Trade contraction or expansion is no longer simply a question of changes in trade flows between a producing country and a consuming country — goods cross many frontiers during the production process, and components in the final product are counted every time they cross a frontier.”

The WTO says a third element likely to contribute to the contraction of trade is a shortage of trade finance, while a fourth factor is protectionism. “Any rises in protection will threaten the prospects for recovery and prolong the downturn. The risk of aggravated protectionism is rightly a source of concern going forward.”

However, trade also can be a potent tool in lifting the world from the current economic doldrums, WTO Director General Pascal Lamy says. “For the last 30 years, trade has been an ever-increasing part of economic activity, with trade growth often outpacing gains in output.

“Production for many products is sourced around the world, so there is a multiplier effect – as demand falls sharply, overall, trade will fall even further. The depleted pool of funds available for trade finance has contributed to the significant decline in trade flows, in particular in developing countries.”

As a consequence, many thousands of trade-related jobs are being lost, Lamy says. “Governments must avoid making this bad situation worse by reverting to protectionist measures, which in reality protect no nation and threaten the loss of more jobs.

“We are carefully monitoring trade-policy developments. The use of protectionist measures is on the rise. The risk is increasing of such measures choking off trade as an engine of recovery. We must be vigilant, because we know restricting imports only leads your trade partner to follow suit and hit your exports.”

One indicator of the severity of the global downturn in trade is the decline in international shipping. The WTO says International Air Transport Assn. data show air cargo traffic fell 23% in December, compared with like-2007, led by a 26% decrease in the Asia/Pacific region.

“To give some perspective on the magnitude of this drop, the decline recorded in September 2001 (following the U.S. terrorists’ attacks), when most of the world’s aircraft were temporarily grounded, was only 14%,” the report says.