Trade in the doldrums

Trade in the doldrums

The global financial crisis is now threatening to send world trade into the doldrums. Banks sit at the heart of global trade, giving out letters of credit that guarantee payments for goods sold in other nations. This activity has now ground to a halt, because banks are no longer in a position to provide trade finance. They have shut down.

This is something that does not make it to the headlines. But the damage a slowdown in trade can inflict on the economy should not be underestimated. Global trade allows countries to specialize in what they do best. Companies use supply chains to source inputs from one country and ship output to other countries. This is a delicate tapestry that should not be damaged.

But the news here is not good. Freight rates to ship stuff around the world have collapsed to five-year lows. There are reports of ships carrying commodities and industrial output stranded at various ports in the West.

Forget the Doha deadlock for now. There is a more immediate threat to world trade and prosperity.