Coronavirus sinks world trade and puts globalization at risk

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More than a slowdown it is a collapse. The coronavirus has successfully stopped world trade. The annual report of the World Trade Organization (WTO) confirms that 2020 will be the worst year since this institution was born 25 years ago. We are therefore facing the greatest contraction of the last generation.

Global exchanges have been the symbol of almost two decades of hyper globalization. Now everything indicates that we are at a turning point that perhaps this production model will change forever. The figures that the WTO manages are discouraging. Almost all regions and all sectors will experience double-digit drops in trade volumes in 2020. After 2019 that was already negative, with a 0.1% drop in trade due to the rise of the trade war and the Increased tariffs, the Covid-19 this damage will give the lace.

WTO

The body warns that protectionism should not be the solution because “nobody can alone”

The volume of imports and exports will fall, as the different scenarios evolve, between 13% and 32% this year. The latter would be a percentage that would triple the slip experienced with the 2008 financial crisis, which suggests the magnitude of the disaster: the planet’s commercial activity would be a third smaller from one year to the next.

International value chains are being severely affected. “We are facing a global crisis. No country is economically immune. All countries will suffer, “said WTO Director-General Roberto Azevêdo at a press conference.

It is not only a question of container ships: the other weak point of world trade is services. “One of the problems is that these cannot be stored. Once vacation is forfeited or a trip or event is cancelled, that money is lost and cannot be recovered,” they admit at the WTO.

For almost two decades, the volume of trade used to grow at a rate that was twice that of GDP. This has changed radically. Now it will be two years in a row in decline (2019 and 2020). It is something unprecedented and perhaps marks a before and after. “Trade is likely to fall more sharply in sectors characterized by complex value chains, particularly in electronic and automotive products,” the study notes.

The countries that will suffer the most from this adjustment, in this sense, will be those that have been more interconnected with trade in these years, such as the US, China, Korea and the EU. “Global trade migration is unlikely to return to the old model. The international movement will not press the ‘resume’ button. Shoppers, diners and tourists can choose to stay away from each other for a while,” said David McKay, CEO of the Royal Bank of Canada.

The head of the WTO stresses that now two things can happen. Either trade flows diversify and redistribute to avoid restrictions stemming from the pandemic and somehow focus on a more limited regional area, or borders are closed and domestic production is boosted. But, in his opinion, that would be a mistake. “No country is self-sufficient. Raising more barriers is not the solution. ” One of the theses of the WTO is that it is not enough to have the capacity to produce something, but you have to be good at it: hence the inescapable need for trade.

The WTO believes that nobody is capable of producing everything alone and invites countries not to close

For the most optimistic scenario to take place, this organism indicates that it will be necessary for fiscal and monetary stimuli to be implemented; that the pandemic is contained as soon as possible; that there be international cooperation and that the economies remain open. Azevêdo insists that, unlike 2008, the economy’s engine is not broken: it has only run out of gasoline. “Hopefully it can reconnect again,” he says.

By region, exports due to the Covid-19 crisis are expected to fall at least 17.1% this year in North America, 12.9% in South and Central America, and 12.2% in Europe (in the most pessimistic scenario there could be declines in all these territories of between 30% and 40%). The report also foresees a fall in global GDP of at least 2.5% in 2020 (8.8% in the most pessimistic scenario). Percentages that suggest that a stage has been closed.