The COVID-19 pandemic and associated global recession have had a devastating effect on international trade. In the second quarter of 2020, global trade was down 18.5 percent, a far sharper drop than was seen for GDP. Much of the economic activity that continues in a pandemic— health services, housing services, utilities—is not traded internationally, while the widely traded goods such as cars, electronics, and tourism are cut back as people face an uncertain future. The COVID-19 pandemic comes on top of other issues that were already affecting trade, notably Industry 4.0—the current trend of automation and data exchange in manufacturing technologies, including cyberphysical systems, the internet of things, cloud computing, and smart factories. In the years before the pandemic, merchandise trade was increasing less rapidly than world GDP, breaking a long-standing pattern, though trade in services was rising more rapidly. The declining importance of merchandise trade probably reflected both Industry 4.0 as well as the U.S.-China trade war.
The main question addressed in this essay is, what is the likely evolution of supply chains and international trade in the medium to long run after the COVID-19 pandemic? In other words, once the global economy recovers from the cyclical downturn, are there likely to be permanent changes in global trade? Will these create a more difficult environment for development? What policies at the national and international level can mitigate effects that harm development? These are naturally highly speculative questions, but by thinking of them now, we can potentially mitigate the worst long-run effects of this crisis on development.
To read the full essay, please click here.Essay6_Future-of-global-supply-chains
David Dollar is a Senior Fellow in the John L. Thornton China Center at the Brookings Institution.
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