International trade in imports and exports

¶ … Importing & Exporting

Credit is tight -- all over the world. Even enterprises once considered to be virtual 'sure things' are now in doubt, as banking jitters about taking risks with available cash are at an all-time high. Once upon a time, according to Carter Dougherty of the New York Times, trade finance was considered virtually risk-free for banks and other financial institutions. but, as he outlines in his article, "Countries stepping in to finance export trade," this has changed because of the global credit crisis that began in America. This development in the import/export market is especially worrying because trade finance, unlike real estate or investing in the stock market, was thought to only have the small risk of merchandise damage, and to be a 'loan' in name only. However, that is no longer the case and even routine trade finance loans are being treated with the caution of subprime real estate.

Consider the tale of Jeff Auton, the manager of trade finance at Mark Andy, a maker of specialized printing equipment in Chesterfield, Mo. When he [Auton] fielded a call from his distributor in Brazil in December, Mr. Auton received the good news first...[then] the bad news...at least three sales, worth a total of $1 million, were at risk because the local banks were pricing the deal out of the picture," even though the sale was already made (Dougherty 2009). Simply fronting the cash to be paid once the deal was finalized was negated by every bank Auton asked. Eventually, "Auton had to go to the Export-Import Bank of the United States, a government agency, to guarantee a short-term private loan to the Brazilian buyers" (Dougherty 2009). Despite the fears of bank nationalization, businessmen in the import and export trade like Auton are grateful for such government financing and state institutions that enable them to remain solvent in economic hard times.

Auton's plight is just one example of how there has been a seismic increase in the cost of financing trade deals. Export finance loans to India alone have increased 5.5%. This creates a double bind -- it is harder to sell goods, and create deals in the first place between nations, as demand has decreased. Even when the deals are established, financing is impossible to obtain so the deals cannot be executed. Once upon a time, the only risk was viewed as merchandise damage or being lost at sea, now hesitant banks are holding on to every dime of cash in their grasp. "We cannot get credit from U.S. banks," said a small import-export South Korean garment firm "garment exporters like us have reduced our shipments to the U.S. By as much as 70%" (Dougherty 2009). This means fewer choices for U.S. consumers as well as less business for international firms that do business in the U.S., and American consumers already hard-hit by the recession may find it more difficult to purchase cheaper goods manufactured abroad.

Perhaps the most sobering benchmark of world trends is found in Japan, a nation that was once viewed the economic model for the future. Those with long memories can recall how Japan was notable for its unprecedented trade surplus in the 1980s. Now, the export powerhouse has had four consecutive quarters of trade deficits in January, "the longest such stretch since the price of oil upset its trade balance in the 1970s" (Dougherty 2009).

Those with memories as short as last year can recall how global trade was trumpeted as the panacea to the world's ills, now the International Monetary Fund (IMF) "expects the total volume of global trade to shrink in 2009 by 2.8%" the first contraction since the 1982 world recession (Dougherty 2009). Japan's government will also lend $1 trillion worth of foreign currency reserves Toyota, Sony and other desperate and struggling Japanese export-driven companies. "About $5 billion of Japan's foreign currency reserves will be used to finance a government-backed bank that will be charged with making dollar-denominated loans. The carmaker said its wholly owned subsidiary Toyota Financial Services was requesting money that would help it make more loans to customers in the United States" in hopes to stimulate demand for automobiles (Dougherty 2009). Automobiles have been one of the hardest-hit commodity products in the United States.

Japan, in a further effort to stimulate international trade, "recently pledged $1 billion to the World Bank to finance trade with emerging markets in partnership with banks, and is underwriting a regional insurance system for trade finance. In Europe, the French government recently used a new agency to finance exports of $6.5 billion in planes made by Airbus, the European commercial jetliner manufacturer. The German government, working through a private insurance company, is putting more resources into exports to Russia" (Dougherty 2009).