3 Severe Implications Of Coronavirus On Global Trade



Benjamin Laker | Forbes

The Covid-19 virus is severely affecting international trade, creating a negative economic outlook. Consequently, the global economy is receiving its sharpest reversal since the Great Depression, IMF warns. “This is a crisis like no other,” suggests Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF). “Never in the history of the IMF have we witnessed the world economy coming to a standstill,” she said. “It is way worse than the global financial crisis.”

Georgieva’s comments are supported by worrying fiscal data that shows the number of Americans seeking unemployment benefits hit a record high for the second week in a row. More than 6.6 million filed jobless claims in the week ended March 28, according to the Department of Labor.

The virus has now infected over 125,000 people, and the death toll has surpassed 4,000 worldwide, with both expected to rise as the outbreak spreads. And so, what are the implications on global trade that lie ahead? Three, in particular, stand out and forecast a challenging route ahead – one that will require courage to tread.

But that is courage – balancing realism and optimism in a dire situation such as this is.

Jim Collins calls such balance the Stockdale Paradox, and suggests confronting reality, however stark, is vital to success. This type of paradoxical thinking defines philosophies for great leaders, whether it’s weathering through torturous imprisonment in a POW camp or facing Covid-19 hardships. The inherent contradictory dichotomy demonstrates an insightful perspective and challenges unbridled optimists and positivity peddlers, who may find the three implications on global trade that lie ahead difficult to accept.

1.It’s much harder to repurpose supply chains than people assume

Uncertainty is the biggest hurdle for businesses because it impedes their ability to plan and commit financial and human resources to specific projects and keep their costs low. They do their best to predict demand for several months in advance. But it is hard to do that now because supply chains are so global. For those businesses fortunate enough to have increased demand, say, ventilators, and medical supplies manufacturers, ramping up production is not at all simple.

Inputs are typically required from several suppliers who may be located in different places, some of which are experiencing lockdowns. As such, there is a much talk about repurposing factories. We read of companies like Dyson and Airbus trying to manufacture medical equipment, but this is not so straightforward. It is difficult to repurpose factories, to retrain workers, arrange new suppliers, and acquire the necessary certifications.

However, the most significant challenges lie in the inherent weaknesses of the distribution and logistics aspects of supply chains. Logistics and distribution are very people-intensive. One cannot load ships, inspect goods, drive trucks, trains without people. We know that a good percentage of these people are unable to work because they are not considered essential or are infected.

Even when they are not, there may be restrictions on their movement. In short, while there may be goods available for purchase (for instance, China has plenty of PPE supplies), but how do you get them to where they are needed, in Europe or America? Thus, it may require governments to reconsider the essential professions, and expand to include them in the long-run. Nonetheless, costs will rise, as these people will want to be appropriately compensated.

2.Nationalism will rise, and continue to rise

We’ve seen some governments take action to block the export of items they deem critical. Therefore, it’s likely will see more and more nationalism when it comes to what individual governments regard to be essential resources and goods for their populations. We have seen the issue of food security. Countries such as Kazakhstan, Serbia, and Morocco have acted to secure food supplies and have sought to limit exports of critical staples, such as wheat, rice among others.

Nationalism extends to the broader concept of ‘national security’. As such, we are seeing several countries invoke restrictions or taking action to secure medical supplies. India has banned the export of ‘key’ medicines, from as simple things as paracetamol to face masks and chloroquine. The U.S. has threatened to nationalize key firms making medical equipment, on the grounds of national security, invoking wartime powers, because, as Trump argues, ‘we are at war’ which extends beyond U.S. borders.

The U.S. is trying to sequester 3M’s output of safety equipment from its Singapore factory exclusively for the U.S., even though 3M has been producing for other customers. Global value chains make this strong-arming difficult. Ventilators made by Philips in its U.S. factory need components from Europe. Attempts to force Philips to prioritize U.S. customers over legally contracted orders, and in defiance of the E.U. may lead to a new kind of trade war for control of critical resources.


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