Four great Asian trade collapses

The COVID-19 pandemic has made economists revisit experiences of the trade collapse of 2008-09 as well as the trade collapse between the interwar period of 1929-33.

This paper by Alan de Bromhead et al. compares the inter-war and the post-2008 trade collapses in four Asian economies - China, Japan, India, Dutch East Indies. They draw their inferences by constructing novel commodity-specific bilateral trade dataset for these economies for the inter-war period.

The interesting findings are:

• Post-1929 trade collapse was worse than that of 2008-09 in almost every respect.

• As in the Great Recession, trade collapse in 1929-31 was similar across the four Asian countries and was in sync with world trade. Post-1931, Japan saw a recovery and India arrested the steep decline in trade, with their departure from the gold standard. Imports to China and Dutch East Indies continued to decline.

• Prices were more important than quantities in driving the trade collapse, unlike the trade collapse of the Great Recession which was driven by movements in both prices and quantity.

• Despite rise in protection during 1929-33, the interwar trade collapses in these Asian countries occurred mainly because of a decline in average trade for country-commodity pairs rather than some trade vanishing completely.

• In general, imports of durable goods fell by more than imports of nondurables, except in China and India. In China and India, rapid industrialization required imports of capital goods and durable industrial supplies.

• Unlike in trade collapse of 2008, the period between 1929-31 witnessed geographically imbalanced import declines. Post- 1931, discriminatory trade policies began to affect geographical patterns of trade.