UNCTAD

Coronavirus (COVID-19) and trade, how bad will declines get?

What started as a novel coronavirus in China at the end of 2019/beginning of 2020 has transformed into a global pandemic. Data compiled as of this morning (March 20, 2020) shows a tripling of confirmed cases globally in the last fifteen days from 102,123 cases to 305,225. The number of countries and territories reporting at least one confirmed case now stands at 177 — -41 in Africa, 36 in the Americas, 39 in Asia, 55 in Europe and 7 in Oceania. See European Centre for Disease Prevention and Control, Situation update worldwide, as of 22 March 2020, https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases

The spread of COVID-19 in China has dramatically slowed in the last fifteen days. While there had been 80,759 confirmed cases of COVID-19 fifteen days ago in China (79.1% of the global totals), in the last fifteen days, China has reported only 731 additional confirmed case (0.36% of the new cases over the last fifteen days) with China’s share of global cases to date dropping sharply to 26.7% as of March 22. The European Union has shot into the number one slot for most confirmed cases and highest number of deaths. Data for the EU/EEA and UK show confirmed cases as of March 22nd at 141,858 (46.48% of global total) and with deaths at 7,319 (56.55% of the global total of 12,942). See European Centre for Disease Prevention and Control, Situation update for the EU/EEA and the UK, as of 22 March 2020, https://www.ecdc.europa.eu/en/cases-2019-ncov-eueea The United States is also finding a rapidly growing number of confirmed cases, numbers that are likely to grow dramatically higher as widespread testing abilities become available in the coming days and weeks. As of March 22, US confirmed cases were 26,747, 98.7% of which were identified in the last fifteen days.

With the rate of growth of the number of people infected with COVID-19 still accelerating in many parts of the world and with no currently available vaccine, a number of countries have taken increasingly stringent measures to try to control the spread of the virus. Moreover, many countries are facing growing challenges in terms of availability of testing supplies and ventilators, protective equipment (gloves, masks, etc.), medical facilities capable of handling severe cases, and simple workload for medical providers. Lockdowns of countries or cities or states/provinces for other than essential personnel has grown in an effort to flatten the number of cases and prevent medical systems from being overwhelmed. The wholesale closure of schools, restaurants, sports facilities and other venues is having high economic costs and obvious major challenges for significant parts of the populations in some countries. So too, travel restrictions first internationally and even in country have expanded. Social distancing is being mandated. Quarantining of individuals returning from foreign travel or who have been in contact with someone who has tested positive has disrupted lives for hundreds of thousands of people.

As reviewed in a recent Congressional Research paper entitled “COVID-19: An Overview of Trade-Related Measures to Address Access to Medical Goods,” some countries have implemented export restraints on medical supplies. Others have been reducing or eliminating tariffs on specific products in short supply in country. See, e.g., https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/march/ustr-response-coronavirus-crisis. Some countries have also been modifying import procedures to permit expedited clearance of critical medical goods. And some countries have been prioritizing domestic production of items deemed critical. The March 20, 2020 CRS paper is enclosed below.

CRS-March-2020-COVID-19-an-overview-of-trade-related-measures-to-addr.._

While there may be questions of WTO-compatibility of some of the actions being taken, the severity of the problem of the spread of coronavirus is leading to a wide range of actions by those nations hard hit by the virus as they attempt to safeguard the health and safety of their citizens.

International organizations like the World Trade Organization, businesses and governments are all having to rethink what can be done remotely, postponed or cancelled while efforts are ongoing to address the pandemic. The 12th Ministerial Conference that was to be held in Kazakhstan in June 2020 has been postponed for an unknown period of time. Meetings in the WTO have been cancelled for several weeks and efforts at virtual meetings are facing challenges. While efforts continue to make progress on fisheries subsidies talks, the challenges flowing from the pandemic may subconciously reduce the collective will to achieve a meaningful result (or any result) in the remainder of 2020.

Because of the severity of the virus on large portions of the population and the lack of a vaccine (with likely availability still a year or more away), efforts to estimate the effect of the virus on national or global economies has been an exercise in chasing a moving target. A March 4 release from UNCTAD looked at likely reductions in global trade from COVID-19 where the major disruption was in China and to supply chains dependent on Chinese inputs. A reduction in trade of $50 billion was estimated. https://unctad.org/en/PublicationsLibrary/ditcinf2020d1.pdf?user=1653. The March 4 estimate is dwarfed when one includes the collapse of the global airline industry, the harm to tourism in China, Europe and the US (and other countries) and the shuttering of sectors in major markets like Europe and the United States (e.g., restaurants and bars, sporting events, entertainment facilities (theme parks, movies, theater, etc.). In a March 9 statement from UNCTAD, concerns about reduced global growth (but still positive) put the likely cost of COVID-19 at $1 trillion with a worst case of $2 trillion. https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2300.

A mid-term update to the OECD’s economic forecast released in early March revised estimated global growth down from 2.9% to 2.5% and if widespread problems in Asia, Europe and the United States, a decline to a growth rate of just 1.5% due to COVID 19. But the interim projections had the EU and the US still with some GDP growth in 2020. 2 March 2020, OECD Interim Economic Assessment, Coronavirus – The World Economy at Risk, https://www.oecd.org/economic-outlook/.

A more recent estimate by Goldman Sach’s predicts an extraordinary 2nd quarter 2020 contraction in the U.S. GDP of more than 24% and a full year 2020 contraction in GDP of 3.8%. See, e.g., Markets Insider, “Goldman Sachs now says US GDP will shrink 24% next quarter amid the coronavirus pandemic – which would be 2.5 times bigger than any decline in history,” March 20, 2020, , https://markets.businessinsider.com/news/stocks/us-gdp-drop-record-2q-amid-coronavirus-recession-goldman-sachs-2020-3-1029018308.

Governments are taking aggressive steps to try to address the potential economic damage from their efforts to slow the spread of the coronavirus. The U.S. Congress has passed one piece of legislation last week and will likely pass a second where the collective costs may exceed $2 trillion as Congress and the Administration try to deal with the challenge to millions of Americans suddenly unemployed, to the collapse of many small businesses and the challenges to major industries like the airline industry.

Similarly, the European Union is looking at actions that would involve hundreds of billions of Euros to address many of the same challenges.

With the collapsing of demand in major developed economies in Europe and the U.S. while these extraordinary measures restricting movement are in place, global trade has been and will continue to be significantly impacted. Articles indicate that China’s exports in January and February were reduced by 17.2% from prior year levels due in large part to COVID-19 (imports into China were down 4%) with spillover effects to many other countries who use Chinese inputs for further manufactured goods. See, e.g., Bloombergs, China’s Exports Slump As Coronavirus Forces Shutdown, March 6, 2020, https://www.bloomberg.com/news/articles/2020-03-07/china-s-jan-feb-exports-fall-17-2-y-y-in-dollars-est-16-2. While China has embarked on efforts to spur economic growth and growth in exports now that the number of cases seems to be under control in China, the rebound in China’s trade will certainly be slowed by the challenges being experienced in other major markets, particularly in the EU and the United States.

While G-7 leaders have indicated the importance of keeping trade flowing and many restrictions specifically exclude coverage of legitimate trade (e.g., US-Canada and US-Mexico recent agreements on restricting cross-border movements), there is little doubt that 2020 will be a challenging year for global trade whether the country engaged in trade is experiencing serious challenges from coronavirus or not. See, e.g., G7 leaders’ statement on COVID-19, https://www.consilium.europa.eu/en/press/press-releases/2020/03/16/g7-leaders-statement-on-covid-19/ WTO DG welcomes G&7 leaders’ statement on COVID-19, https://www.wto.org/english/news_e/news20_e/dgra_17mar20_e.htm.

Still, any efforts of major trading nations to support the global trading system and limit restrictions as possible in these extraordinary circumstances is important, as are efforts of business associations to collaborate to address challenges to business operations from the virus.

Because past outbreaks appear to be poor examples of either the severity of the problems being faced by a number of countries or the length of time disruption will occur before economies hard hit can start to rebound, an air of uncertainty of unique dimensions is likely to continue to overhang global markets for a number of months and potentially longer. The best that may be possible in the global trade field is a substantial slump in traffic without major long-term barriers being introduced.

Here’s hoping that the “invisible enemy” that COVID-19 has been called by some proves addressable in the near term. Billions of people are watching and attempting to cope with lives often seriously disrupted. Helping the people of the world survive the health challenges posed by COVID-19 is obviously job one for governments around the world confronting rapidly increasing numbers of confirmed cases. Trade can assist in some important ways during such a crisis. Unfortunately, trade actions can be used in times of crisis to promote beggar-thy-neighbor actions which can make dependence on global supply chains and foreign sources of key products politically untenable. We are seeing both sides of how trade is perceived playing out in countries at the present time.