# **4.  Country and Product Profile of the Decline in US and EU Import Demand**

## **4.1 Product-Based Analysis of US and EU Imports**

The country level variation in import demand is a function of macroeconomic conditions (foreign demand growth and changes in the real effective exchange rate) and the commodity composition of trade. To look more closely at the latter, we explore the shifts in import demand in the US and EU over the past 12-18 months in more detail. Figure 4 above showed the US import trends for broad commodity groupings, which showed that industrial supplies and materials imports fell much more than consumer goods (except autos) and services. These data are aggregated up from the detailed goods import data presented in _Appendix 3_ . Total goods imports decreased by 31% in August 2009 on a year-to-year (YTY) basis. In our first analysis of the downturn (Milberg and Winkler, 2009a) for February 2009, US imports fell most in motor vehicles, oil and construction on a YTY basis, and with the smallest declines in food and clothing, two consumer necessities.

The decline in motor vehicle demand in the US has had significant international repercussions, since the US motor vehicle production is more reliant on imported inputs than any other sector of the economy, with over 25% of inputs imported.<sup>24</sup> Our first analysis using February 2009 YTY data showed that rapid declines in imports of various categories of auto and truck parts by dramatic amounts, ranging from a decline in imports of unfinished metals (largely used for motor vehicles) of 55%, automotive vehicles, parts and engines (-54%), of which bodies and chassis for passenger cars (-71%). These declines are the result of a combination of a sudden collapse of consumer demand for new automobiles and the highly developed global value chains developed by US and US-based firms. As discussed above, the fact that the demand drop was concentrated at first in consumer durables and investment goods such as construction materials (“postponeables” in Baldwin’s (2009b) terminology) meant that there was a much more drastic impact on trade than on GDP, since the latter is dominated by services.<sup>25</sup> See _Appendix 4_ for the detailed services import data.

The sectoral declines in US imports give some indication of the composition of shifts in labor demand. Since it is medium-technology goods whose demand has fallen most, we would expect low-skill manufacturing workers in developing countries to have suffered most in terms of employment and wages. Services workers – both low and high skill – have so far been affected less because private services have continued to grow and even the most affected services sector (other transportation) has declined considerably less than the average decline for goods.

The pattern of import decline for the EU is similar to that in the US, but less pronounced. EU goods import growth can be found in _Figure 7_ . Total goods imports fell by almost 29% in August 2009 on a YTY basis. Manufactured goods showed the biggest decline, reaching more than -40% since the second quarter of 2009. This again supports the finding that the drop of demand fell most strongly for “postponeables”, that is, consumer durables, and investment goods. As in the US, the demand for imported industrial supplies and materials (mineral fuels, lubricants, and related materials; animal and vegetable oils, fats and waxes; crude materials, inedible, except fuels) showed a sharp decline, while more necessary consumer goods such as food and miscellaneous manufactured articles (including clothing and footwear) dropped by less.<sup>26</sup>

> 24 See Figure 5 above.  For a detailed analysis, see Sturgeon and van Biesebroeck (2010).

> 25 Borchert and Mattoo (2009) list a number of reasons why the demand for services has contracted less than the demand for goods in the current crisis, including the non-storability of services and the fact that a larger part of services demand involves outsourced services (e.g. book-keeping) which are “necessities” for producers.

> 26 Unfortunately, Eurostat does not report trade data for services.

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