Effects on Trade in the Post-Corona World

Year 2020 has brought a major challenge in the form of Covid-19,more commonly referred to as the corona virus disease, which has sent shock waves to economies around the world. The virus has killed more than 5,00000 people since its outbreak in november 2019. The corona virus emerged in China and spread globally, authorities have acted to limit its spread.

Experience with similar diseases reveals that while the human costs are significant, the bulk of the economic costs are due to the preventive behavior of individuals and the transmission control policies of governments. Current experience is no different. As the virus spread internationally, many countries have already taken or will eventually take action to limit the spread, through social isolation policies, such as shutting educational institutions, limiting work and restricting the mobility of people. The preventive actions have had an immediate and significant impact on all economies, and through trade and tourism, on partner economies.

The virus that triggered a localized shock in China is now delivering a significant global shock. This article simulates the potential impact of COVID-19 on gross domestic product and trade. It models the shock as under-utilization of labor and capital, an increase in international trade costs, a drop in travel services, and a redirection of 4 percent below the benchmark for the world, in an amplified pandemic demand away from activities that require proximity between people.

A baseline global pandemic scenario sees gross domestic product fall by 2 percent below the benchmark for the world, 2.5 percent for developing countries, and 1.8 percent for industrial countries. The declines are making a scenario in which containment is assumed to take longer and which now seems more likely.

The biggest negative shock is recorded in the output of domestic services affected by the pandemic, as well as in traded tourist services. This exercise is illustrative, because it is still too early to make an informed assessment of the full impact of the Pandemic. According to a June 23 forecast update, the world trade organization estimated that global trade volumes could fall by 18.5% in 2020 and then recover in 2021.

According to world economic forum, China’s growth in the first quarter of 2020 is likely to slow down to 4.5%. Pakistan is also one of the country hit by corona virus as exports reduced to $957million in April 2020 from $2.089 billion. Imports have also reduced by 34.49% which is good for Pakistan as trade deficit has shrunk to $2.131 billion in April 2020 as against $2.625 billion shows reduction of 18.82%.

In our illustrative simulations of the shocks are identical across countries, and the deep recession under the amplified global pandemic scenario results in negative impacts on exports across all sectors and most destinations. The country-specific results are driven by the initial composition of output and exports by sector and destination, but also by the country’s level of openness and relative changes in the competitiveness of the exporting country and its trading partners.

Under the amplified global pandemic scenario, US exports are expected to decline by almost $85 billion (2014 dollars). According to the international trade centre the United States imported more than $472 billion worth of goods from China in 2019. The value of imports dropped 16.1% in covid-19. The US trade deficit widened by almost 12% in March Imports fell 6.2%Exports fell 9.6% causing the trade gap to rise . Biggest monthly decline in exports ever recorded.  The US deficit rise to $44.4 billion in march from $39.8 billion in February.

As the corona pandemic grounded international flights. Froze the global Tourism industry. And caused massive disruptions in the exchange of goods such as new cars and phones. The most impacted are exports of services, especially tourism and services requiring face-to-face interaction.

The biggest declines are expected in exports to Europe , driven by recession and lower demand in those regions, the main destinations for US exports in services. In the case of China, the biggest decline of exports is registered in manufacturing goods, and in Chinese exports directed to the United States, Europe and Asian countries. There is a small increase in exports to Asian countries, where Chinese products become relatively more competitive than products of other suppliers, and where domestic producers cannot fully satisfy the domestic demand.

Finally, in the case of Thailand, the biggest impacts are on exports of manufacturing goods and services, with very little impact on agricultural goods or natural resources. Services exports to the United States and Europe register the biggest declines, while manufacturing exports to China and her partners take the biggest hit. At the end the world trade deficit is the highest ever.

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