As is well known, the Covid-19 pandemic has caused a great deal of damage. In addition to the public health damage, which is of paramount importance, the economic damage should not be underestimated. At Lesam International Group, we organise and manage international shipments all over the world, and our industry has also been hard hit by the pandemic wave.
Trade, by definition, is the economic activity of exchanging products , which travel a long way from the producer to the final consumer. But what would happen if, for some reason of force majeure, everything came to a standstill? If ships could no longer sail, or planes take off? This is what happened following the outbreak of the pandemic. Between sick staff and strict government restrictions, trade, especially in some specific sectors, came to a standstill.
Import and export: How they have changed
Since the era of globalisation, it is safe to say that the whole world - in one way or another - is now strongly interconnected. Well, so is trade. Therefore, considering that it is supported by two major pillars (such as the US and China), as soon as one domino falls, all the others will be affected as well.
We know that the enormous Covid chaos started in China. So, as soon as this nation started to give in to the power of the invisible enemy (closing down business, transport, travel and, therefore, part of trade) it triggered a real knock-on effect on all world trade. Moreover, as mentioned above, China is not alone in holding the role of the world's most powerful economy. In its company is the historic enemy America. Let us see how the two pillars of world trade have acted.
How have the US and China behaved in this scenario?
The WTO (World Trade Organization) has found that the decline in global trade, triggered by Covid-19, has reached levels very close to those of the early 2010s. In this way, it is as if all the progress made in the last decade has been wiped out. Just to quantify the extent of the damage, the European Union, compared to the United States, recorded a drop in exports of - 43.4%.
On the other hand, Europe's business with China fell from EUR 16 billion to EUR 15 billion. But let's look at how China and the US performed individually. More than a year after Covid, trade can be said to have recovered moderately. However, each country has taken the measures it deemed necessary and not all have managed to recover in the same way.
This is the case in Beijing (China), which has preferred to support manufacturing and push for foreign sales. On the other hand, the United States has invested heavily to shore up household demand, pouring in imports (some of which come from "friendly" China).
In aggregate terms, however, these economic powers have suffered a major reversal of trade surplusessince the beginning of the pandemic. The main culprits for this "trend" seem to be government policies that prefer to grow domestic demand, which is met through imports. Just like the United States. On the contrary, China, relying entirely on exports, wanted to satisfy the demand for goods expressed by advanced economies, reaching record volumes.
Post-Pandemic: Solutions to recover international trade
To summarise, leaving aside specific individual cases, it can generally be said that the pandemic caused a sharp drop in exports worldwide. The reasons for this can be summarised as follows:
- Restrictions on the movement of goods, services and people. This factor did not allow for an adequate boost to exports, but rather hindered them;
- Closure of production activities, which led to a reduction in the supply of goods and services and, inevitably, a decrease in imports;
- Decline in household income (according to ISTAT), again due to the fact that many people were no longer able to work and production chains broke down.
As mentioned at the beginning, the negative effects have spilled over to all global trade. However, during the pandemic, the G20 (an international forum bringing together the world's major economies) came up with four challenges that the countries of the world should adhere to in order to restore international trade. Let us see what they are.
Resumption of trade
According to the WTO, the total fall in trade in 2020 reached 10% compared to the year before. The first challenge, therefore, has been to manage the rebound and try to re-establish the right levels of growth. To do so, it is necessary to keep countries' borders open to trade and to achieve a renewed recovery in international trade. The aim is clearly to accelerate the exit from the economic crisis for many of those countries.
WTO reform
Before the pandemic, the US and China were in a trade war. The WTO had proposed a solution, but it had not been very effective. The second challenge, therefore, was to address that reform and aim for a return to full multilateralism. In fact, as explained in more detail in this article, since Biden initiated the tariff peace with Europe, one can say that the situation has already improved in this respect. In fact, the US and the EU now have a very promising trade future, which will certainly also influence the relationship with China.
Reshoring
The third challenge was to achieve a reduction in uncertainty for companies operating in global markets. Many companies have experienced problems on several fronts: in supply and production chains and in final deliveries. In addition, risk perception and market volatility have also increased. As a result, some companies have talked about'reshoring', that economic phenomenon whereby they bring back within their national borders the production stages located elsewhere, in order to increase their sense of security.
Better use of common resources
The last challenge was to look at the evolution of international trade in general and not related to the last pandemic year. In order to be able to grow at a sustained pace, international trade patterns need to be reassessed to some extent. The aim is to ensure greater involvement of all countries, therefore, not only of those already advanced, but also and especially of developing countries.
Sharing all these principles would make it possible to re-establish new common rules that have only one aim: to allow sustained trade growth again.
