World Trade Is Not a Zero-Sum Game, but a Negative-Sum Game.

This reality is too often underestimated.

Movements in commodity prices act like the croupier in a global casino: they redistribute the cards of income flows between economies at high speed. These flows are materialized by changes in the balances of current payments.

Without trading with space, the trade deficits of some are the surpluses of others. On a global scale, this redistribution of the cards has no reason a priori to lead to any change in aggregate demand. A deterioration in the trade balance, whether it be the widening of an existing deficit (America, France, etc.) or the transformation of a surplus into a trade deficit (Germany), is akin to a withdrawal of purchasing power from the economy as a whole.

Conversely, an economy whose surplus is growing or whose deficit is shrinking sees its international purchasing power increase. If all national economies have the same capacity to spend a flow of income, this redistribution is like a zero-sum game.

Except that economies do not have the same capacity to absorb an additional flow of income or the same capacity to compensate for the loss of income that a deteriorating trade balance represents. In the current situation, trade balance movements resulting from the play of relative prices even have a recessionary effect on a global scale.

Let's start with those economies that are experiencing a growing deficit balance, such as the Eurozone. Its trade with the rest of the world produced a trade surplus of around $220 billion in 2019. The deficit in 2022 could exceed $200 billion. This $400 billion in lost revenue flows is equivalent to 3 points of GDP. They consist of a net loss to the economy to be shared among businesses, households, and governments. The latter can choose to bear all or part of it and limit the resulting decline in aggregate demand by increasing the government deficit, thereby worsening their asset position.

In economies with a growing trade balance, thanks to oil, for example, the trade surplus increases. Thus, more than 100 billion dollars in 2022 compared to 2019 for Norway ... or more than 25% of its GDP. It is difficult to imagine that its expenditure in volume will increase overnight by 25%. The windfall will therefore rather strengthen its sovereign wealth fund.

On another level, one-third of the change in the trade balance of the eurozone between 2019 and 2022 comes from the widening of its bilateral deficit with China. The Chinese savings rate (43%) is higher than that of the eurozone (26%). This redistribution thus hurts the level of aggregate demand.

Finally, the evolution of bilateral trade with Russia explains more than 20% of the evolution of the trade balance of the eurozone. Russia is an economy with a high absorption capacity due to its size and a savings rate close to that of the eurozone. But this absorption capacity is constrained by the sanctions. Or rather, the absorption capacity in favor of products from Western economies is constrained.

All in all, the game of rebalancing trade balances on a global scale is anything but a zero-sum game, but rather a negative-sum game for the global economy, and particularly for Europe.