International Trade in a Post Coronavirus World

COVID-19 is having an unprecedented impact on economies around the world. The International Monetary Fund (IMF) warns that the global economy is heading for a recession that will rival the Great Depression. But the scenario that the world finds itself in is unique. Economic activity has been deliberately stalled, with intentions to start it up again once countries get a handle on the virus. 

While international trade has suffered a slump as a consequence of global restrictions to prevent coronavirus spread, the next few months should see it pick back up again as countries come out of lockdown and resume somewhat normal activities. But what will international trade look like once we’ve overcome the epidemic? Will it return to “normal’? Or will a new “normal” be instated?

An increase of protectionism

Currently, protectionism is rising across the globes as countries seek to protect their supplies to better equip them for dealing with the pandemic. Around 75 countries have already initiated restrictions on the exports of certain items, such as medical supplies. Most EU countries are on this list of 75, including Brazil, China, India, and Russia.

The impact of protectionism on international trade is negative. It prevents imported products from remaining competitive, resulting in a reduction in demand.

Amidst the coronavirus health crisis, the US has seen a strong lean toward protectionist strategies, with Washington invoking the Defense Protection Act, which dates back to the Korean war, to force the corporation 3M to manufacture N95 respirators for use in the US. Following this, the President also ordered that 3M not sell more face masks to neighboring Canada and Latin American countries. 

Although a deal was eventually struck in which export could continue from the US into these countries, the intention to prevent such essential products from leaving the country signifies the favoring or protectionist activities that are becoming increasingly popular around the world.

This is a problem for international trade as well as global economies. By its nature, protectionism reduces the volume of goods being imported and exported internationally. It also reduces the integration of emerging economies, which has a detrimental impact on economies, incomes, and tackling poverty in developing countries.

At this point, it is difficult to predict whether protectionism is here to stay or is just a reaction to the COVID-19 situation. The coming months will make the future landscape of international trade clearer.

Shortening supply chains

One change that is likely to endure in a post coronavirus world is the shortening of supply chains and relocating key activities closer to the location of the product destination. This tactic is beneficial to keeping operations moving during the pandemic when international transport is restricted. It also fits in with climate change initiatives and will likely be a permanent change moving forward.

Europe may see companies relocating activities that are currently in Asia to North Africa, for instance. This will have a significant impact on international trade as it will significantly impact which countries are most strongly connected, and which products are available in certain regions.

Overall, some changes to international trade will only be temporary while the world tackles COVID-19. However, some will continue to make sense moving forward, such as the shortening of supply chains.