Global trade in goods could fall by as much as 32% this year
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The World Trade Organization is predicting that global trade in merchandise — goods being shipped from one country to another, including finished products and parts — will fall by anywhere from 13% to 32% this year. The organization’s director general called those numbers “ugly.”
The WTO says the impact of COVID-19 is extremely broad, stressing multiple economic sectors in every major region of the world. Exports from North America and Asia will be the hardest hit, according to the report, and trade in goods with complex value chains, such as electronics and autos, will fall furthest.
The U.S. is in a relatively less vulnerable position than some of its key European and Asian trading partners, said Columbia University economist Sharyn O’Halloran.
“The U.S. is one of the more insulated countries from international trade,” she said, with only about 30% of the domestic U.S. economy directly connected to trade.
But O’Halloran said trade-related sectors — such as airplane- and auto-making — are likely to have an outsized impact on the speed of economic recovery once the pandemic has passed.
“Our ability to bring in the supplies, reignite assembling in autos and so forth, requires inputs that are built abroad,” she said.
If a major economy like the European Union’s can’t ship and sell its own goods abroad, she said, “… it’s going to have a hard time buying our goods.”
Global supply chains have already been massively disrupted, said economist Mary Lovely at the Peterson Institute for International Economics.
Production and commerce in Europe and North America are still largely shut down. Worldwide, goods aren’t moving off shelves and ports aren’t moving goods out to sea.
“It’s basically gumming up the works,” Lovely said. “We expect that we’re going to see cancellation of entire routes — this is particularly going to hit trade between North America and Asia.”
Global trade disruptions are hitting Driscoll’s, the California-based fruit importer and exporter. Its business has fallen by at least 15%, said the company’s Americas president Soren Bjorn.
“We rely heavily on air freight, a lot of times we fly in the bellies of passenger planes,” Bjorn said. “Obviously, a lot of those planes are no longer flying. So now we are left with a few cargo planes which tend to be very, very expensive.”
Bjorn said that if consumers recover their jobs and incomes after the pandemic has passed, he believes his company’s berry sales will largely rebound as well.
University of Maryland economist Peter Morici isn’t overly worried about the domestic economy’s ability to recover from double-digit drops in GDP and global trade this year. He argues that the U.S. economy can thrive without continuing to increase international trade, and by using tariffs and other measures to protect U.S. industries from unfair foreign competition.
Morici pointed out that after the global financial crisis, international trade did not return to its pre-crisis growth trajectory. He predicts a further leveling off after this crisis.
“This virus and the economic downdraft likely accelerate adjustments to global trade that were going to take place anyway,” Morici said. “My feeling is that five to seven years from now, it’ll be as if the virus never happened.”
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