The great trade collapse (and recovery)

The collapse and rebound in U.S. international trade from 2008 to 2010 was quite stunning. Over this period, the fluctuations in international trade were bigger than the fluctuations in either production of or expenditures on traded goods. These relatively large fluctuations in international trade were surprising to some, since international trade had been growing at a very fast pace for quite a long time. They were equally surprising for trade theorists, since these movements in trade arise in standard models of international trade only when the costs of international trade rise and fall substantially. In this article, George Alessandria places these recent fluctuations in international trade in historical context. He then considers some explanations for the relatively large fluctuations in trade related to the nature of trade, protectionism, and financial constraints.