Another of the virus’s lasting legacies is to strengthen a global trend towards greater protectionism, a point also made by Dr Rebecca Harding in flow’s Trade re-set (26 June) where she talks about the “world’s retreat into protectionism and nationalism”.
“The Covid-19 shock is likely to leave permanent scars with a substantial retrenchment of global goods and services trade for years to come,” warn Deutsche Bank’s Reid and colleagues in The long road to recovery. They predict, “Global value chains could become less attractive and will be curtailed in favour of continental value chains. Pure continental production lines should be less prone to any sort of global crisis and are easier to manage in the event of a crisis.”
One development that was more of a surprise has been China’s trade performance in Q2 2020, where “exports have held up exceptionally well, in fact much stronger than in previous downturns,” despite the worst global recession since World War Two. “But Covid-19 has so far had mixed impact on China's exports, including positive effects on some products such as medical supplies and electronics,” the authors note.
However, overall, the outlook for global trade in the short term remains pretty bleak according to Deutsche Bank’s Chief Economist Stefan Schneider and colleagues in the 26 June report Focus Germany: Sounding out the Q2 GDP slump. They cite a variety of “growth dampening effects” and predicts that “more protectionism, the health situation in many emerging markets, the only gradual recovery in developed economies and repeatedly interrupted global value chains will dominate in the short run”.
Referencing the 2008 Global Financial Crisis and its ensuing “wave of protectionism”, Schneider’s team expect the average growth rate of global trade to be similarly impacted by the pandemic. “We think the subdued gradual recovery will continue with a growth rate of 5% in 2022 and then a growth rate which is close to the new normal average growth of 1.7% p.a. for global trade in goods and 3% p.a. for global trade in goods & services. Both growth rates are assumed to be slightly lower than pre-[pandemic]. From 2012 to 2019 they were 2.2% and 3.3% on annual average.”
Wider concern about the future of multilateral trade and trust between economies remains. “For the WTO, trust is a perishable commodity. If there is too much testing by members of the outer limits of existing rules or taking excursions outside of them, trust deteriorates, and the multilateral trading system becomes less reliable,” said the body’s Deputy Director General Alan Wolff on 26 June.2