Economic project

The Economist September 12th 2020 Finance & economics 63

In quentin tarantino’s “Kill Bill: Vol- ume 2”, an action drama, the protagonist,

played by Uma Thurman, punches her way out of a coffin. Global trade in goods has performed a similar death-defying stunt during the covid-19 pandemic. In April things looked dismal. Some predicted glo- bal trade would slump by more than 30% this year, compared with 2019. But after a gut-wrenching spring, trade volumes re- corded their biggest monthly rise on record in June, the last month of available data (see chart). Oxford Economics, a consul- tancy, predicts that in 2020 as a whole vol- umes may drop by 10%.

This resilience has defied recent experi- ence, as well as expectations. In 2009, when global gdp fell by 0.1% in the final year of the financial crisis, trade plunged by a whopping 13%. This year the imf fore- casts that global gdp could fall by 4.9%, ie, 50 times more than in 2009. So why will the hit to trade probably be smaller?

After the financial crisis trade volumes fell much further than gdp mostly because people stopped buying heavily traded dur- able goods, such as cars. But in the current crisis, untraded domestic services have been harder hit than they were back then. Going to the cinema or a restaurant halted during lockdown. Buying an imported fridge did not. That has made the drop in trade relative to gdp smaller.

Moreover, the robustness of the world’s production apparatus has underpinned trade flows. Covid-19 froze supply chains, but in Asia at least they swiftly started to thaw. According to Simon Evenett of the University of St Gallen in Switzerland, the number of trade restrictions applied on

medical goods and medicine since the start of the crisis peaked in April, and has since fallen by 15%. Even more importantly, lock- downs were lifted more quickly than ex- pected, allowing exporting powerhouses like China and Germany to reopen factories and boost output.

Pandemic-induced demand gave trade in some products extra pep. America’s im- ports of protective equipment tripled be- tween March and July, calculates Panjiva, a trade-data company. Covid-related pro- ducts including computing equipment for home-working has accounted for the ma- jority of China’s year-on-year export growth in each month since June. Eytan Buchman of Freightos, an online market- place, reports that ocean-freight prices are surging for routes between America and South-East Asia, partly because of “near- frantic” e-commerce offerings by small businesses.

Policymakers have played a pivotal role in the trade revival. Monetary and fiscal firepower was bigger and faster than trade experts had expected. Central-bank liquid- ity measures kept trade finance flowing better than it did during the financial cri- sis, says Jennifer McKeown of Capital Eco- nomics, a research outfit.

Although the trade performance is cause for relief, no one should declare vic- tory yet. A second wave of lockdowns, or overhasty efforts to curtail economic stim- ulus, could derail the recovery. The value of exports from South Korea dipped in August relative to July, as did those of China after adjusting for an artificially depressed base in 2019. Robert Koopman, chief economist of the World Trade Organisation, which oversees global trade, doubts there will be a sustained v-shaped recovery.

Overlaying this is a concern about the lingering unevenness of trade. Brad Setser of the Council on Foreign Relations, an American think-tank, says that the trade slump has shrunk the gap between most countries’ imports and exports, reducing imbalances. Yet there have been two stand- out exceptions. The first is China, whose rapid reopening has sent its exports of goods surging to a level last seen before the Sino-American trade war—almost $60bn higher than imports in August. The second is America, whose policies to stoke de- mand have had the side-effect of causing its trade deficit to increase further—to around $80bn in July.

This imbalance is ominous. Although the so-called Phase One trade deal between America and China was meant to prop up American exports to China, so far it has dis- appointed. Trade may not have perform- ed as badly as many feared. But it still has an alarming ability to pack a Thur- manesque punch. 7

WA S H I N GTO N , D C

Commerce has shown a strange resilience to covid-19

Global trade

Down but not out

Houdini act World merchandise trade % change on a year earlier

Source: CPB World Trade Monitor

20

10

0

-10

-20

2018161412102008

Reproduced with permission of copyright owner. Further reproduction prohibited without permission.