How is Coronavirus Affecting International Trade
The virus has now infected over 150 million people and the death toll has surpassed 3.15 million worldwide, with new daily cases averaging at 816,354 despite rapid vaccination campaigns across the globe.
Governments have struggled to cope with the challenges coronavirus poses to the global economy and with the social disruption that has befallen on the world. Not only had the coronavirus initiated a global health crisis but having originated in China, which is a central manufacturing hub for many businesses across the world, the repercussions of their halted economy disrupted international trade and global shipping.
Coronavirus Continues to Threaten Businesses
The beginning of the coronavirus pandemic saw businesses operate on a ‘just in time’ model by relying on regular imports and holding low stock of products, ingredients or materials for international trade to reduce warehouse costs. This resulted in labour deficits and a deceleration in production time as businesses used global shipping services on a means necessary basis. As a result, fewer goods were exported and at the importing stage of the cycle, heavy quarantine procedures/health checks were carried out at ports, prolonging the delay.
Businesses aren’t the only ones reluctant to spend too, as Gross Domestic Product (GDP) growth figures revealed significant declines in consumer spending across the globe during 2020. This became most apparent in the retail and tourism sectors, perhaps due to a loss of income, fear of contagion or increased anxiety around the virus’s developments. This was a barrier to international trade as lower demand limits production, which also resulted in job cuts as well as reduced shares.
The global economy contracted by 3.5% in 2020, the worst contraction since the 1930s. The increase in Covid-19 cases across the globe will continue to fuel economic uncertainty, which will likely cost the global economy around 22 trillion US dollars between 2020 – 2025.
Global Trade Faces Serious Impacts
Vendors who were relying heavily on goods imported from China were having to seek alternative sources of production, which resulted in a backlog during the start of the coronavirus pandemic. This, in turn, reduced space in shipping containers and increased shipping costs, each contributing to the delay in supply.
Britain plugged into all the large economies and, in recent years, increased international trade with China. Many British businesses now rely heavily upon exports from China and the depression in global shipping services due to the epidemic placed pressure on international business and trade.
Immediate effects were experienced on the supply and demand for oil, agricultural goods and metals in the global market. China is the world’s largest oil importer and when Chinese President, Xi Jinping, issued a lockdown, the Organisation of the Petroleum Exporting Countries (OPEC) suffered severely as a result, with production falling 600K barrels per day.
Crude oil, agriculture and metals are just some of the many commodity markets impacted by the coronavirus, which is also threatening to push the global economy into recession.
Last year saw global shares subject to their worst day since the 2008 financial crisis, with declines in London taking some £125bn off the value of major UK firms. Whilst many citizens feel like they won’t be affected by stock market chaos, pension pots are influenced by their performance, so it is important to watch financial markets and export and import commodities.
The UK’s budget deficit reached GBP 270.8bn over the first nine months of the 2020/21 financial year, up from GBP 58.1bn during April-December 2019.
During the Spring budget, British Chancellor, Rishi Sunak, announced plans to extend the UK furlough scheme to the end of September, as well as the stamp duty holiday which will finish the end of June. The extended support will help struggling business and workers as well as boost the UK property market.
Targeted Economic Policies Are Needed
Targeted fiscal policies will need to be implemented to support economies through the epidemic and prevent the crisis from causing permanent harm to global markets and economies. It was forecast last year that by 2021, the global economy would be able to recover by 3.3% by the Organisation for Economic Cooperation and Development (OECD) but only if the coronavirus doesn’t worsen throughout Asia, Europe and North America.
The overall economic outlook is beginning to improve significantly as a result of coronavirus vaccines. Prime Minister Boris Johnson’s plan to ease the UK out of lockdown has also provided further economic confidence.
In response to the coronavirus pandemic, the Bank of England (BoE) announced an emergency cut in UK interest rates during 2020 and monitored and managed financial and monetary stability alongside the Financial Conduct Authority (FCA) to ensure all necessary steps were being taken to protect the UK and global economies.
Last year saw former US President Trump respond to the coronavirus pandemic by asking Congress for USD 50 billion for small business loans and to make immediate payroll tax cuts. He also temporarily banned travel from the Schengen Areas of Europe to the US and eventually the UK.
Former US President Donald Trump attempted to quell businesses rising fears of an international trade suspension by stating the ban only applies to people and not goods. He later mentioned that health insurance companies would be waiving coronavirus related payments and added that emergency financial relief will be provided for workers who fall ill or need to be quarantined.
The US economic outlook, however, is also improving following Joe Biden presidential win last year. During his inauguration, he revealed plans for a USD 1.9 trillion stimulus package, which was passed during early March. The passing of the bill instilled optimism within the US economy, as US unemployment remains a priority for President Biden.
With countries around the world still struggling with the coronavirus outbreak, a coordinated international response was much needed to ensure the global economy would not crash and the most effective solutions to prevent the spreading.
Thinking ahead and implementing strategies
In order to alleviate barriers to international trade, businesses will have to identify other trading markets. Countries such as Mexico, India and Malaysia opened competitive markets if businesses needed an alternative source of production.
China appeared to recover swiftly from the coronavirus crisis and now has minimal daily infections, which helped boost countries such as New Zealand and Australia who are major trading partners with China.
As central governments continue to assess and respond to the virus, global trading companies continue to adjust production by altering logistics routes, avoiding critical supply chain disruptions by not stockpiling on supplies and reducing spending to prevent barriers to international trade.