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Trade is among the casualties in the COVID-19 pandemic

Home News Trade is among the casualties in the COVID-19 pandemic

Global trade is being hurt on both the demand and supply sides. Urgent action is required to open freight channels and to resist protectionism.

As COVID-19 spreads around the globe, its impact extends far beyond the health implications of a pandemic that has already killed more than 20,000 people in barely three months. To halt the spread of the disease, public officials and business managers have made decisions that are effectively bringing the global economy to a standstill. Several countries have closed all businesses except grocery stores and pharmacies and have locked down many of their citizens within their homes. Other countries — including Canada and the United States — have closed their borders to nonessential traffic.

Lessons from last decade’s global recession suggest that international trade will be hit exceptionally hard by these containment measures, even though there are limits to the parallels we can draw. In 2009, global trade crumpled by nearly 10 percent, exceeding the fall in global GDP by a factor of five. The reasons for this “Great Trade Collapse” were twofold. On the demand side, households reacted to the economic downturn by disproportionately postponing the purchase of durable goods such as cars and home appliances, which are more heavily traded than nondurables and services. On the supply side, exports were more susceptible to financial shocks than domestic sales.

We can expect the demand-side effect to repeat itself this time around. Large-scale quarantines and travel restrictions have already led to a precipitous fall in consumer and business spending.

Read full article here.

Source: CSCB; Policy Options Magazine

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