World trade or globalization was facing challenges prior to the pandemic with trade wars being waged between the U.S. and China, Mexico, Canada and Europe. Then came the coronavirus pandemic this spring that has dramatically reduced international trade flows.
A report in Site Selection Magazine contends that globalization is not dead, but is in fact evolving as businesses contend with the impacts of the pandemic, protectionism and trade conflicts across the globe.
Prior to the pandemic, world trade fell 3% between 2018 to 2019. The World Trade Organization (WTO) reported this spring that merchandise trade volume fell by 0.1% in 2019, weighed down by trade tensions and slowing economic growth. The dollar value of world merchandise exports in 2019 fell by 3% to $18.89 trillion. The value of commercial services exports rose 2% to $6.03 trillion in 2019.
This spring, the WTO predicted world merchandise trade could plummet by between 13% and 32% in 2020 due to the COVID-19 pandemic. Nearly all regions will suffer double-digit declines in trade volumes in 2020, with exports from North America and Asia hit hardest.
Trade will likely fall steeper in sectors with complex value chains, particularly electronics and automotive products. Services trade may be most directly affected by COVID-19 through transport and travel restrictions.
The WTO noted that a 2021 recovery in trade is expected, but will be dependent on the duration of the outbreak and the effectiveness of the policy responses.
“This crisis is first and foremost a health crisis which has forced governments to take unprecedented measures to protect people’s lives,” WTO Director-General Roberto Azevêdo said. “The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself.”
Azevêdo addressed the current COVID-impacted business climate, and also the prospects for a vibrant recovery post-pandemic. He noted, “These numbers are ugly—there is no getting around that. But a rapid, vigorous rebound is possible. Decisions taken now will determine the future shape of the recovery and global growth prospects. We need to lay the foundations for a strong, sustained and socially inclusive recovery. Trade will be an important ingredient here, along with fiscal and monetary policy. Keeping markets open and predictable, as well as fostering a more generally favorable business environment, will be critical to spur the renewed investment we will need. And if countries work together, we will see a much faster recovery than if each country acts alone."
The WTO predicted that if the pandemic is brought under control and trade starts to expand again, most regions could record double-digit rebounds in 2021 of between 21% to 24%. “The extent of uncertainty is very high, and it is well within the realm of possibilities that for both 2020 and 2021 the outcomes could be above or below these outcomes,” the WTO noted.
In the Site Selection Magazine article, author John Manzella stresses, “Globalization is not dying. Rather, it’s evolving, and existing trends are accelerating. American companies and workers would be wise to prepare for what’s ahead.”
In the article, the founder of the ManzellaReport.com, discussed the importance of globalization and how technology, such as 3-D printing, as well as transportation and finance advances have fostered growth in international trade over the years.
Due to political instability, particularly with the trade battle currently being waged between the U.S. and China, Manzella strongly recommends companies not being solely reliant on one country or only one source of supply.
American companies are at least considering drastic action in connection with the political, health trade disagreements between the US and China.
Manzella pointed to an April 2020 joint survey published by AmCham China and AmCham Shanghai, that reported approximately 40% of respondents said they were considering moving or have already moved manufacturing facilities out of China.
For the full Site Selection Magazine article, go to: https://siteselection.com/investor-watch/will-covid-19-kill-globalization-what-you-need-to-know.cfm#gsc.tab=0
