The coronavirus is badly affecting international trade, developing an adverse economic outlook. Thereby, the global economy is getting its sharpest setback since the Great Depression.
COVID-19 has now infected over 125,000,000 people, & the death toll has topped over a million worldwide, with both anticipated to rise as the virus spreads. Besides this great loss with regard to human lives, the world is currently facing a serious economic slowdown. The pandemic has brought unannounced challenges to the worldwide economy & international trade has been strongly affected by it.
Why has the situation taken a severe turn?
Even though economists & policymakers are comparing the current economic setback with The Great Depression & the financial crisis of 2009, the loss caused by the coronavirus pandemic is far greater & has a unique nature.
Even during The Great Depression of the 1930s, banks were not short of funds & the economic engine was in reasonable shape. However, this time around, it’s not the case. Due to trade tensions among several countries & sluggish economic growth, trade was beforehand trembling in 2019 prior to the spread of the virus.
Besides, transport & travel are at present directly affected in ways they were not at the time of financial crisis 10 years ago. Today, the entire national economic sector is terminated. The WTO has stated that every region in the world will suffer double-figure declines in exports & imports in 2020, aside from the “Other Regions,” which is consisting of the Middle-East, Africa, & CIS (Commonwealth of Independent States).
The world’s important economic powers like the US, UK, Italy, France, China, Germany, Japan & many other growing economies like India, etc., are on the brink of collapse. The crude oil prices have fallen off the cliff & the OECD stated that worldwide growth might be cut in half to 1.5% in 2020 in case the coronavirus continues to spread.
For productivity, the world requires human labor& half of the world presently under lockdown for an unknown period, which will have a massive impact on the economy & trade in general.
It is much harder to reshape supply chains than community assume
Uncertainty is the foremost hurdle for businesses as it hampers the ability to plan & commit financial & human resources to particular projects & keep their costs down. Countries do their best to foresee demand for a few months in advance. But it’s hard to do that now as supply chains are so worldwide.
For those businesses lucky enough to have higher demand, say, ventilators, & medical supplies producers, ramping up output is not at all easy. Inputs are commonly required from various suppliers who may be based in different places, a few of which are going through lockdowns. Accordingly, there is much discussion about repurposing factories. However, it’s problematic to repurpose factories, retrain laborers, arrange new dealers, & acquire the needed certifications.
Yet, the most significant issues lie in the built-in weaknesses of the distribution & logistics aspects of distribution chains. Logistics & distribution are highly people-intensive. One can’t load ships, examine goods, drive trains, trucks without people.
A good percentage of these individuals are unable to work as they’re not considered vital or are infected. Even if they’re not, there might be restrictions on their transportation. In short, while there might be goods available for buying, but no one knows how to get them to the places where it is needed.
Thus, it might need governments to reconsider the vital professions & expand to comprise them in the long run. Nevertheless, costs will rise, as these individuals will want to be properly compensated.
Impact on Global Value Chains
In the last few decades, China has become vital to the global economy. China’s rising importance in the global economy is not just related to its position as a manufacturer & exporter of user products. China has grown into the main supplier of intervening inputs for manufacturing corporations abroad.
To this day, about 20% of global trade in manufacturing intervening products originates in China. Chinese manufacturing is crucial to a lot of global value chains, particularly for those related to machinery, precision instruments, automotive & communication equipment.
Any substantial disruption in China’s delivery in these sectors is believed to significantly affect producers in the wider world. Indeed, a lot of companies around the globe are fearful that the measures implemented to contain coronavirus might hinder the supply of crucial parts from Chinese producers, hence affecting their own productivity.
Impacted Countries
A cut in the Chinese supply of intervening inputs might affect the productive capability &, therefore, the exports of any specific country depending on how dependent its industries are on Chinese suppliers. For example, a few European automobile manufacturers might face a shortage of vital components for their functioning, companies in Japan might find it difficult to get parts required for the assembly of digicams, & so on.
For a lot of companies, the confined use of inventories lodged by a lean & just-in-time production process would lead to shortages that will affect their production capabilities & overall exports. Overall, the most affected economies will be the United States (automotive, precise instrument, & automotive), European Union (automotive, machinery, & chemicals), Japan (machinery & automotive), Vietnam (equipment of communication), the Republic of Korea (communication equipment & machinery), & Taiwan (office machinery & communication equipment).
Conclusion
The catastrophe is real & we have to accept its threatening face. The world might now heal just through cooperation & coordination. Every country of the world must come together to battle the pandemic & revive the world economy & trade. The tensions happening between several countries concerning trade must be released now for a more suitable future. The WTO (World Trade Organization) has mentioned that only if the countries join hands, international trade might rebound.
In case the economy is permitted to go into a coma, the revival costs will be incredible. Therefore, every financial option accessible to the government, be it ways & means advance, bonds loans from banks, bankruptcy, etc., have to be reinstated to keep the economy active.