2019-20 Coronavirus Pandemic: Looming Impact on World Trade

The 2019-20 coronavirus pandemic is the outbreak of coronavirus disease 2019 (Covid-19), which is a severe form of acute respiratory disease. The outbreak started out in Wuhan, Hubei, in mainland China in December 2019. The actual timeline in the disease’s trajectory from actual outbreak to reaching epidemic status in China is now a matter of dispute as there are evidences of coverup by the Chinese authorities. The outbreak, which was initially perceived as a local epidemic, soon exploded into a global pandemic and was designated thus by the World Health Organization (WHO) on March 11th, 2020.

By February of 2020, the epicenter of the pandemic had shifted base from China to Europe. Mediterranean Italy suffered the largest numbers of casualties- with about 25,000 deaths to date. The global focus is now on the United States as the death toll due to the pandemic rises. Projections have indicated that it would have the largest casualty when the whole drama ends. As at the last count, the global death toll had hit the 2 million mark.

The Effect on World Trade

It does not take the use of a crystal ball to see the immediate and forthcoming effects of the global pandemic on world trade. One of the obvious sign is that the world is heading towards serious economic recession. On the other hand, the long term effect on the fiscal and economic interests would start to take serious root in the third quarter 2020. The effect might take up to three years to slow down.

Globally, the full effects of the concerted efforts being made to combat the pandemic might not be felt until the end of the second quarter 2020. Most governments are already taking steps to limit the economic damage and prepare their citizens for long term recovery plans. Key among these are the stimulation of fiscal and monetary stimulus by governments.

Effect on Global Trade in Services

The first casualties in the trade world were the service industries. When the problem was at epidemic level in China, the country locked down entire regions, closing down huge transport services.

As countries began to close their borders and the infection spread to Western Europe and other continents, the global tourism industry became the first major casualty in the service sector. This came about as a result of travel bans and shutting down of tourist sites.

The global cruise industry was the next in line. Several services were active centers of covid-19 infection as the virus spread among the passengers. Most of these affected ships were not allowed to dock in order to stop the disease spreading to inhabitants of the port city. It is believed that after the ease on the current lock-downs, the industry might witness close-downs and takeovers.

The shutting down of the tourist services then took its toll on the airline businesses too. As the number of passengers dwindled, most of the airline operators began to shut down while some smaller/weaker ones closed shop totally.

In addition, all the other service industries that are connected to the airline business e.g. business travel and tourism, began to take their share of the collapse. World’s hospitality industry (Hotels, cafes, eateries etc).

The education system is one major service pool that is already feeling the effect as most educational institutions are firmly shut down.

Next in line is the world sports and entertainment industry. Globally, most major sport events were shut down. In the music industry, concerts and tours were cancelled. In the movie industry, cinemas were closed and movie premieres were postponed.

The banking industry would not be left out of the whole problem, as funds dry up and businesses slows down. Although this might not be evident until the initial part of the re-opening process by countries.

The only service industry that is fully functional, albeit at an alarming rate is the global health industry. The industry had been wholly overwhelmed by the global viral outbreak and had witnessed the loss of a large number of personnel.

Effect on Global Trade in Goods

The global trade in commodity items is highly dependent on timely projections. The intricate dynamics of demand and supply is used in planning for imports and exports. Most times the consumer items that are going to be used within a period are imported about a quarter earlier. This means that most of the cargoes being shipped across the oceans today were ordered during the pre-pandemic season. What this means is that the full effect of the pandemic is not yet being felt in the shipping industry.

The crude oil price might not pick up considerably for the next few months.

As the rate of unemployment rises as some industries downsize (other could close down totally), the buying patter of people would change. Currently, people’s demand is now focused on essential commodities that would guarantee their survival- mostly food items, drugs, personal protection equipment and general survival kits. This means that the demand for non-essential goods and luxury items would drop drastically. The ripple effect would be networked downsizing on the entire supply chain of these non-essential items.

China’s dominance as the main manufacturing hub of the world might start dwindling as countries transit towards localization- the local production of goods and services and relocation of centers to other countries. For example, Japan has earmarked US$2.2 billion out the total fund for economic stimulus package to assist its manufacturers relocate production outside of China. Other countries and companies might follow suit in order to reduce global over-dependence on one source of strategic goods production. The major beneficiaries of this move will be emerging economy countries such as Vietnam, Mexico, Brazil, India and South Africa.

The Chinese might respond to this by deliberately relocating their companies outside mainland China. This is to ensure that they still capture profits in the dynamic flow of the global economy.

In the shipping industry world, the effect of the pandemic on shipments, particularly the cargo liners might take some time (up to three months) to take effect. As recession creeps in and industries lay off workers, people’s savings would dry up. The demand for consumer goods would drop, leading to lesser demand for shipping services. Some of the existing services might merge, be taken over by bigger operators or simply go underground.

Plans by some countries to expand their port / cargo logistics system might have to be put on hold. This applies to global trade projects such as the Belt & Road Initiative (BRI). In the shipbuilding industry, the ongoing plans to construct container carrier of up to 26,000 TEU might be put on hold by the carriers in order to conserve funds.