Amid economic disruptions from Covid-19, global trade on the whole held up relatively well in 2020 and moved on to greater strength in 2021, according to a report by United Nations Conference on Trade and Development (UNCTAD).
The World Trade Organisation’s Goods Trade Barometer has hit a record high in its latest reading issued on 18 August.
The Goods Trade Barometer is a composite leading indicator providing real-time information on the trajectory of merchandise trade relative to recent trends ahead of conventional trade volume statistics. The latest barometer reading of 110.4 is the highest on record since the indicator was first released in July 2016, and up more than 20 points year-on-year.
“ Much of the trade resilience was due to East Asian economies, whose early success in pandemic mitigation allowed them to rebound faster and to capitalise on booming global demand for COVID-19 related products. The positive trends from the last few months of 2020 grew stronger in early 2021. In the first quarter of 2021, the value of global trade in goods and services grew by about 4 per cent quarter-over-quarter and by about 10 per cent year-over-year. Importantly, global trade in Q1 2021 was higher than pre-crisis levels, with an increase of about 3 per cent relative to Q1 2019.”
Trade in services has not rebounded as strongly, and this hits Cyprus for which the export of services is much more important than the trade in goods.
But we are seeing a welcome rebound from the period in which former US president Donald Trump maintained policies that caused a steep decline in global trade.
The United States, the world’s largest importer, started a bitter tariff war with China and with its European allies in 2018. Then US President Donald Trump upended longstanding trade relationships with many of Washington’s top trading partners.
The fallout: Global growth in 2019 fell to 3.0 per cent, the slowest pace in a decade, before the pandemic started, the International Monetary Fund said.
Trump caused further disruption by attempting to undermine the World Trade Organization. He refused to name new judges to its hearings, and this effectively made it impossible for the organisation to operate.
“The world came perilously close to a return to what we saw in the 1930s. In response to the outbreak of the Great Depression, countries imposed trade barriers, blocking imports from other state, and a general escalation of tit-for-tat protectionism which hurt economic growth for many years,” according to analysts at Chatham House.
All this has changed today.
“Looking forward, trade is expected to continue growing into 2021. Trade growth is expected to remain stronger for East Asia and developed countries, while still lagging for many other countries. The value of global trade in goods and services is forecast to reach $6.6 trillion in the second quarter of 2021, equivalent to a year-over-year increase of about 31 per cent relative to the lowest point of 2020 and of about 3 per cent to the pre-pandemic levels of 2019. Trade growth is expected to remain strong in the second half of 2021, the overall forecast for 2021 indicates an increase of about 16 per cent from the lowest point of 2020 (19 per cent for goods and 8 per cent for services),” the UNCTAD report continues.
All of this rebound is threatened, however, by the fragility of global trade operations.
The Chinese port of Ningbo has been closed for eight days starting on August 10. According to analysts at Russell Group’s ALPS Marine platform, China’s partial closure of the port of Ningbo threatens $172 billion worth of global trade and the export of $39.2 billion worth of Integrated Circuit Boards (ICBs).
Says Russell Group CEO Suki Basi: ““Fragility that means that any slight disruption to the network of trade, whether that be a closure of a port or a blockage of a shipping route, creates chaos for shippers, global supply chains and ultimately consumers.”
Snags in the global supply chain only worsen an already tortured year for exporters, with shipping costs sky-high due to a shortage of containers and as raw materials such as semiconductors become pricier and difficult to source amid red-hot demand. The US imports half of all its semiconductors from Southeast Asia, so that any snarl in deliveries stops work on factory floors in the States.
According to the World Economic Forum, obsolete technology in supply chains contributes to the slowdown.
“Global logistics companies, running to a surprising degree on brittle mainframe systems, siloed spreadsheets and even paper documents, are unable to keep up with rebounding demand for goods following last year’s lockdowns. This is causing serious shipping delays and bottlenecks that are driving up costs, with containers from Asia to the United States surpassing $15,000 – more than quadruple the pre-pandemic rate. All told, container costs are driving roughly 3 per cent inflation on goods shipped by ocean,” the WEF writes.
Ocean and air shipping have yet to benefit from the software-driven advances that other industries have enjoyed in recent decades, the WEF continues.
“After all, the shipping industry runs on disjointed and antiquated systems rather than a single data model to power all of global logistics. That makes it harder for companies to navigate fragmented supply chains that are susceptible to disruptions ranging from storms to strikes. As a result, businesses can rarely say with certainty where their goods are during the ocean shipping process and whether they’re on the most efficient route.”
Logistics providers must leapfrog from their legacy systems to the latest technology if global trade is to keep moving, the WEF warns. We’ve fixed the international relations that Trump nearly wrecked, now we just need a tech upgrade to see global trade take off again.