2020, COVID-19: Il Bacio Della Morte for Trade

Opinion Economic Analysis by Rhea Haddad, Staff Writer

November 6th, 2020

“Globalization is a fact, because of technology, because of an integrated global supply chain, because of changes in transportation. And we’re not going to be able to build a wall around that.” - Barack Obama 

Globalization has indeed changed the face of the world into one global borderless village. In a pre-coronavirus world, globalization has been, along with international trade, the main contributor to economic developments across the planet. This year unfolded with the expectation that trade issues will be a critical focus area for pursuing the 2030 Sustainable Development Agenda, a plan of action for people, planet, and prosperity. 

One of the 21 goals with a 2020 deadline was to substantially increase exports of developing countries and to double the shares of the least developed countries. However, this year will be remembered for different reasons by the global trade regime. The COVID-19 pandemic severely obstructed the global economy and particularly international trade flows. 

As the virus is spreading across countries and infecting more and more people, governments are expanding the containment zones and restricting trade at a global level. According to the IMF, the worldwide GDP has fallen by 4.4% so far this year, primarily because of a decline in trade opportunities. Several sets of shocks occurring simultaneously are responsible for this drop. 

First, there has been a supply shock caused by low employment rates and supply disruptions hindering production in the world’s manufacturing heartland, East Asia. This resulted in a rise in the cost of international trade imports, making it, therefore, harder for traders to conduct exchanges. 

Additionally, there are severe declines in demands. The recession altered people’s needs at this time. Households and businesses are cutting down expenses and focusing on their primary needs. There are delays recorded in making purchases by customers and investments by firms. People purchase fewer services requiring close human contact, like public transportation, domestic tourism, restaurants, and leisure activities, while redirecting demand towards the consumption of goods and other services. 

As the demands are low and travel restrictions are higher, the prices of domestically traded commodities, including vital goods, are rising. At the peak of the pandemic, for instance, there was a significant shortage of medical masks. When they were sold on the market, they had a high price resulting from more demand and less supply. 

Despite tremendous uncertainty, several actions can be taken now to improve the international trade situation. 

First, confidence in trade and global markets can be enhanced through a transparency system. To promote national policy responses at the base of an optimal trade system, sharing strong, clear, and accessible knowledge is the key. Countries must fulfill their obligations by reporting trade-related actions in response to the pandemic to the World Trade Organization. 

Moreover, it is crucial to keep the supply chains of essential goods open and functioning, despite the numerous challenges that are adding to the time and cost of internationally traded products. Collective actions by governments and the private sector must be taken to find solutions to the technical constraints affecting the ability to get vital goods when they are most needed. An urgent matter is facilitating the acquirement of medical supplies produced across many countries and supplied through trade and that is indispensable to tackle the pandemic.  

Finally, there are many unavoidable costs in the pandemic. This adds incentive to avoid actions that contribute to the expenses of merchants and consumers by reducing export restrictions on essential goods such as medical equipment and food products. In global agricultural and food markets, there is currently no supply problem: stocks are present, and prices are likely to remain low. However, if governments impose export restrictions or if individuals, firms, or countries engage in panic buying, a new unnecessary problem will arise. 

The pandemic has hit different countries at different levels. Promoting international trade will ensure a country’s sustainable economic recovery. This is only possible if governments around the world adopt an optimal action plan. 

Social distancing measures compulsory to fight the coronavirus should not create barriers between the citizens of the global village. In these distant times, all of us, individuals, governments, and countries need to unite and take action to overcome the repercussions of the pandemic.  

Only through unity will we defeat the coronavirus, overcome the recession, and retrieve our global village.