This paper describes the Great Trade Collapse refers to a sharp decline in trade values during the recent global recession in 2008. Analysis of this slump shows that the decline can be significantly attributed to trade quantities as opposed to trading prices. …
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This impact was severely felt by the durable goods sector as opposed to the nondurable goods sector. As a result, international supply chains also played a crucial role with regard to the Great Collapse (Husted and Michael, 55). As mentioned before, the Great Collapse of 2008 can be described in various forms. These forms include the following: It was severe and sudden. This is because the Great Collapse represented the largest drop in global trade values in recent times. Thus, the drop is only rivaled in magnitude by the Great Depression. However, the Great Collapse was steeper in comparison to the Great Depression due to the short spell of time within which the Great Collapse occurred. It was synchronized. This is because according to the World Fact Book, during the Great Collapse, more than 100 nations incurred a drop in both exports and imports. CAUSES OF THE GREAT COLLAPSE According to Caballero, the Great Collapse can ultimately be attributed to the Great Recession which represented a spell of the economic slump. However, from an analytic point of view, the collapse can be attributed to various demand shocks. Similar to the dwindling global demand, commodity prices also fell, thus, resulting in a significant drop in the international trade. Compositional Effect. According to Caballero, the compositional effect expounds on the nature of the demand shock. The shock focused on certain products. These products mainly included durable products such as vehicles and electronics. Therefore, since these products are a large part of the global trade while forming a relatively smaller part of GDP, the sudden drop in their demand produced a diminished impact on the GDP as opposed to global trade. This argument attempts to explain the reason behind the huge impact of the Great Collapse on global trade as opposed to GDP. Synchronicity Effect. The synchronicity effect expounds on the uniformity in the occurrence of the collapse. Caballero further states that the synchronicity of the collapse can be attributed to the international supply chains and the causes of the Great Recession. Internationalization of the supply chains contributed significantly to the rapid transmission of the demand shocks. This resulted in the synchronized drop for both imports and exports. With regard to the cause of the Great Recession, it can be attributed to the inception the “fear factor” resulting from the collapse of major investment banks in the US. As a result, there was a synchronized postponement of durable commodities such as vehicles and electronics. In addition, even luxury tourism ventures were postponed. Thus, this effect was rapidly transmitted across the globe, in turn, contributing significantly to the synchronism of the Great Collapse. MEXICO The Great Collapse resulted in numerous concerns in regards to the process of globalization. This was owed to the fact that globalization was immensely credited with the global propagation of the collapse. As a result, numerous countries across the globe were immensely affected by the collapse. One of the most affected nations by the Great Collapse was Mexico. Its trade fell by over 40 percent within a spell of 6 months following the onset of the Great Collapse in September 2008. The country's exports and imports have since appreciated significantly in recent times.
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