International Trade is Also a Victim of the Coronavirus

 

The coronavirus has put a brake on globalization. The trade balances of the countries have been reduced, and that has negatively affected the evolution of international trade. If we look at present prospects, the World Trade Organization forecasts a 9.2% decrease in the volume of world trade for this year. Comparatively, the estimate of the deterioration of world growth is that the set of economies regressed GDP of 4.8%.

In 2020, we saw a negative first part of the year, some improvements in the months of June and July that brought optimism, but we are currently seeing a second wave in the pandemic that will entail different restrictive measures and, therefore, put at risk the current shrinkage estimates.

International trade is a critical channel for getting essential products to those who need them, said Ari Afilalo, Law Professor at Rutgers Law School. Therefore, taking actions to facilitate international trade is essential in the current context.

At this point, it is necessary to highlight the role of China, which is an important contributor in world trade. Its exports managed to recover from the collapse reached at the beginning of the year, supported by an earlier resumption of activity, a strong rebound in external demand specifically oriented to medical equipment and equipment to support the shift towards telework formulas. It is very significant that China posted a 9.9% year-on-year growth in its exports in September, explains Ari Afilalo who is a specialist in international trade law, business transactions, and contracts.

Although the decline in trade during the pandemic has been similar to that manifested in the global financial crisis in 2008-2009, the economic context is clearly different. On this occasion, we have blockages of mobility restrictions that imposed supply limitations on national economies, which has severely reduced their production levels. The current recession reflects a particularly sharp contraction in contact-intensive sectors and less intensity in manufacturing, which generally contracts sharply in recessions as demand for capital and consumer durables plummet.

Another point to bear in mind is that, as Ari Afilalo has repeatedly commented, there is a strong advance in public debt that could also collaterally affect trade and economic growth projections in the long term. This is because many countries must balance a game to maintain economic activity and help businesses and individuals, while ensuring that debt remains sustainable is a task of enormous risks, given the high public debt, spending needs triggered by the crisis, and the blow to public revenue.

Although it is unlikely that rich countries will face sovereign debt crises as a result of fiscal expansion, at least in the short / medium term, the poorest may find the increased debt burden extremely onerous as a result of the weakness of their currencies and uncertainty around debt payments. Deficit spending could also influence trade balances, reducing national savings and increasing trade deficits in some countries.