Some losses are other people’s gains
The UK is suffering from global problems, the government constantly says. Well in that case, how come Britain has a record trade deficit and a falling currency?
It is possible for stockmarkets across the world to collapse in unison and for banks everywhere to be in trouble, but not all countries can have weak currencies and balance of payments deficits at the same time. Currencies and trade balances have to be a zero sum gain worldwide: one country can gain only if another loses.
And on those counts, Britain is a loser – even though a weak currency ought to lead to a smaller trade deficit.
Economics is a complex nexus. Interest rates globally have been cut to avoid a worldwide recession, but the UK’s cuts have helped undermine sterling when other countries’ currencies have risen relatively despite lower interest rates. The weak pound should have boosted UK exports but our sales abroad have instead fallen sharply.
Exports fell almost 6 per cent in November 2008 while imports fell only 1.8 per cent despite the goods costing more in devalued pounds. The deficit thus rose to a record.
But while our deficit is someone else’s balance of payments surplus and our weak pound is someone else’s strong euro or dollar, that trend of falling exports and imports can be international and is. US imports fell 12 per cent in November and imports there were down 12 per cent; China (which produces its statistics faster) saw exports fall 2.8 per cent in December while imports plunged 21.3 per cent.
Total world trade is contracting sharply, and that means all economies face suffering economic slowdown simultaneously. No country has to have higher growth to offset other nations’ recessions.
That is the global problem. Britain, however, has a trade deficit and a weak pound to make that worldwide problem worse.
