The Impact of the Coronavirus on International Trade

The Impact of the Coronavirus on International Trade

No, I'm not talking about some businessperson buying up a few hundred thousand shares in an overseas company- I'm talking trillions and trillions of dollars, Euros, liras, Pounds, Yen, kronor; if you can name it, it can probably be traded. While we're here, does anyone know the total worth of money currently in the world? Well, the combined wealth of all the people of the world is 190 Trillion GBP ($241 trillion). So theoretically, at this point, we could strip the whole human race and make them stand together, all naked, all broke, and be looking at a massive pile of cash. But it's not like that. The actual amount of bonafide MONEY in the world probably centers around the 63 Trillion Pound Point (yes, I think of foreign trade in terms of GBP because unlike Speilberg's Hollywood Aliens, I know that countries other than the United States of America exist.) so that begs the question, where has almost 130 Trillion Pounds gone? Short answer: it's in assets. Cars, homes, clothes, food, land, trees, books, cardboard, everything has value – no matter how minute. And that is the value and the essence of money. Now, until the abolition of the gold standard in 1933, all currencies could be changed into a set value of gold, which formed the basis of international trade. Since humans have come a long way since then (e.g.: Modern doctors no longer prescribe cocaine for stomach aches anymore, nor do they blame them on ghosts!) we now use finished Products as the basis for international trade. ( note: "we" does not include drug kingpins, Money launderers, the Illuminati, Opus Dei, Arms Dealers or Donald Trump:- they still prefer cash, Diamonds or Trump's case, crates of Crispy Colonel Sandwiches, KFC®) that being said, we all know that COVID 19 is shaking up the world economy by an average 18.5% decline in 2020, as compared to the past 5 years. The WTO's trade forecast for 2020 has two scenarios. The better scenario says trade will fall by 13% whereas the more pessimistic scenario places that number at 32%, and a rather ominous "maybe more" added slyly at the end. Everyone is feeling sorry for the airline industries as obviously they must not be making money, because who in their right minds wants to go anywhere right now? I'm scared of going to the grocery store, (and it has now been month 2, week 4, day 3, and hour 11 without Pringles® for me.) let alone flying, right? Wrong! The airline industry's commercial flights have seen a 58% rise in global operations.

The WTO issued its annual Trade Outlook on 8 April, and as Director-General Roberto Azevêdo said, the "numbers are ugly." World merchandise trade is set to plummet by between 13 and 32% in 2020 due to the COVID-19 pandemic. WTO economists believe the decline will likely exceed the trade slump brought on by the global financial crisis of 2008-09. Trade is likely to fall more steeply in sectors characterized by complex value chain linkages, particularly in electronics and automotive products. The services trade will also be highly impacted due to the imposition of transport and travel restrictions and the closure of many retail and hospitality establishments. On the positive side, DG Azevêdo noted that a rapid, vigorous rebound is possible, provided that policymakers show businesses and households reason to believe the pandemic was a temporary, one-time shock. To do this, fiscal policy, monetary policy, and trade policy must all pull in the same direction. Keeping markets open and predictable, as well as fostering a more generally favorable business environment, will be critical. A turn towards protectionism, on the other hand, would introduce new shocks on top of those we are currently enduring. That being said, there are rising concerns that many countries will impose trade restrictions on import/exports thereby reducing access to vital pandemic supplies, medicines, and the like. Fortunately, as the World Trade Organization has 164 members and 24 observers, rather harsh measures will not be taken (we hope). It is important to note that trade plays an important role in ensuring the availability and affordability of vital medicines, medical products, and health care services, particularly among its most vulnerable members. International trade is crucial to ensuring access to medicines and other medical products - no country is entirely self-reliant for the products and equipment it needs for its public health systems.

That said, each WTO member is free to determine what is necessary to protect its citizens and take the measures it deems appropriate. In general, WTO rules provide broad space for members to adopt trade measures deemed necessary to protect public health and public welfare (including import and export bans, quantitative restrictions on imports and exports, and non-automatic import licensing). These measures should be applied in a manner that does not discriminate between WTO members and should not constitute a disguised restriction on international trade.

The general exceptions are set out under two of the WTO's cornerstone agreements – the General Agreement on Tariffs and Trade (GATT) 1994 and the General Agreement on Trade in Services (GATS). The Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) also provides members with the flexibility to ensure that life-saving drugs are available and affordable for their citizens. So it appears as if we will fall. Heavily at that. But to leave you with a glimmer of hope, here is a quote from Michael Caine who plays Alfred in 2005s "Batman Begins".

"Why do we fall? So that we can learn to pick ourselves up."

Written by: Donovan Figg

48 views1 comment

Recent Posts

See All