Chris Rock says that “human hair is India’s biggest export.” That seems unlikely to be true, glancing at the US data. The US imported $1.3 million worth of human hair (HTS code 050100) from India last year, while importing $126 million worth of shrimps and prawns (HTS 030613) and $100 million worth of milled rice (HTS 100630) [USITC Dataweb]. And the World Factbook profile of India doesn’t list hair as a top export. But Indian firms do dominate the Google search results for human hair exporters. Apparently the supply comes from Indian women who shave their heads in religious ceremonies and donate their hair to the priests without compensation.

William Easterly and Laura Freschi follow up on the barrage of inconsistent numbers that I previously lamented.

This Vox column makes the surprising claim that trade costs have risen significantly during the crisis, so much that they match the rise of trade costs in 1929:

The measured trade-cost rise is estimated to be similar in the two events, yet tariffs have not risen in today’s crisis in anywhere near the extent to which they did in the 1930s. This seems to indicate that a good fraction of today’s trade drop is due to non-tariff trade policy and other trade frictions – e.g. evaporating trade credit, credit constraints in the market for consumer durables, and other reported changes in policy have been of equal magnitude (see Ferrantino 2009 on the latter).

The best evidence we have on new trade barriers, the Global Trade Alert initiative, does not suggest a rise in measured protectionism anywhere near that observed in the 1930s. There must be something else driving the rise in trade frictions. Perhaps the protection is so murky that even GTA cannot document it? Perhaps the trade credit problem is the culprit and thus more important than many argue (Chauffour and Farole 2009)?

I’ll have to take a look at the underlying methodology that disaggregates the trade collapse into demand-driven and trade-cost-driven elements before I comment further.

Alan Beattie:

A host of economists have pointed at the disaggregation of supply chains as one of the key reasons. A combination of just-in-time logistics and the digitisation of information has helped fracture supply chains… But as Prof O’Rourke notes, this theory shows why trade volume is higher relative to output; it does not necessarily explain why it falls faster in percentage terms. He has another explanation based on outsourcing: that manufactured goods comprise a bigger proportion of trade today than in the 1930s, when basic commodities had a larger share. Commerce in manufactured goods is more volatile and subject to shifts in demand than commodities, and trade in turn becomes more variable.

Michael J. Ferrantino and Aimee Larsen of the USITC write:

The collapse of US housing associated with the financial crisis shows up clearly in US construction imports, which began to decline much earlier than US imports in general and have fallen more deeply. US real imports of sawn or chipped wood, of the type used in construction, peaked in May 2005 and declined by 62.9% through May 2009. This peak is 29 months earlier than the general peak in US imports. The corresponding price series peaked earlier, in March 2005, and has declined by a cumulative 32.5% through May 2009. A simultaneous decline in prices and quantities is a clear indicator of a decline in import demand, induced by the declining demand for construction. Similarly, US real imports of equipment such as bulldozers, graders, and shovel loaders, which have multiple uses but are important for construction, peaked in May 2006, 19 months before the general peak, and declined by 81.5% in the subsequent three years.

Import prices and quantities for inputs related to housing turned down relatively early compared to more direct indicators of the state of the housing market, such as new housing starts (peaking in May 2005), housing units under construction (September 2005), the Case-Shiller Composite-20 home price index (July 2006), and prices of new one-family homes under construction (March 2007). Construction firms anticipated the bubble, restricting their purchases of imported wood inputs at least as early as their construction activity and well before the decline in housing prices. Since construction plays an important role in the business cycle (Leamer 2007), this suggests that import data on construction inputs may be an important tool in anticipating the business cycle.

Bernardo Blum & Avi Goldfarb, Does the internet defy the law of gravity?, Journal of International Economics, 2006:

We show that gravity holds in the case of digital goods consumed over the Internet that have no trading costs. Therefore trade costs cannot fully account for the effects of distance on trade. In particular, we show that Americans are more likely to visit websites from nearby countries, even controlling for language, income, immigrant stock, etc. Furthermore, we show that this effect only holds for taste-dependent digital products, such as music, games, and pornography. For these, a 1% increase in physical distance reduces website visits by 3.25%. For non-taste-dependent products, such as software, distance has no statistical effect.

Bernardo Blum & Avi Goldfarb, Does the internet defy the law of gravity?, Journal of International Economics, 2006:

We show that gravity holds in the case of digital goods consumed over the Internet that have no trading costs. Therefore trade costs cannot fully account for the effects of distance on trade. In particular, we show that Americans are more likely to visit websites from nearby countries, even controlling for language, income, immigrant stock, etc. Furthermore, we show that this effect only holds for taste-dependent digital products, such as music, games, and pornography. For these, a 1% increase in physical distance reduces website visits by 3.25%. For non-taste-dependent products, such as software, distance has no statistical effect.