The role of China in the trade slowdown

Many analysts worry about the recent international trade slowdown.After the 2008 financial crisis, international trade of goods and world industrial production grew nearly at the same pace implying a trade elasticity of one. This stands in sharp contrast to the pre-crisis period when global trade increased more than two times faster than industrial production. This Rue de la Banque argues that (1) the long-run elasticity of world trade to income is one indeed, but (2) structural changes in China go a long way to explaining changes in trade elasticity;the trade acceleration observed before the crisis was largely driven by the supply-side shock of China integration in the world trade while the recent trade deceleration is closely linked to the shift of China’s production towards domestic demand.