COVID-19 And The Future Of Global Trade

During the coronavirus crisis, many dormant trends in international commerce were accelerated, while new ones emerged. The worst macroeconomic effects of COVID-19 are now in the past. Yet, several of these trends will endure. Here is a look at what has changed and how it will affect cross-border commerce.

More Domestic Consumption In Developing Nations

Local demand for physical goods has grown in many producer nations. It is causing these countries to consume more of what they produce, and export less. The COVID-19 crisis caused serious damage to the economies of developing countries like India and China. China implemented measures to control the damage and boost economic recovery, notably the “Dual Circulation Economic Strategy”. This strategy was adopted in 2020 as China’s relations with the US continued to deteriorate and the external trading environment became less predictable. China felt that it may become unsustainable to continue relying solely on demand from overseas. To keep the country’s large manufacturing apparatus running, the plan places a greater emphasis on the domestic market. Consumption has grown in China. More of what gets made in China is now sold in China. This trend can lead to a substantial decline in international exports.

There is a similar trend of increased domestic consumption in India. Local demand has been increasing in several sectors such as apparel and leather goods. More consumption by Indian consumers is leading to a fall in the share of exports. Domestic demand is more predictable than global demand. It is also less susceptible to adverse international events. India, China, and other developing countries will look inward to tap the potential of their vast domestic markets. They will increasingly rely on indigenous innovation to fuel growth. Since COVID-19 there is a rising trend of countries becoming more economically self-reliant.

Self-Reliance And Reduction In Cross-Border Trade

Countries are opting to become less reliant on imports, particularly in Asia. During COVID-19 there were widespread border closures and travel restrictions. Nations were forced to adopt strong measures to limit the spread of the global contagion. The restrictions caused large scale supply chain disruptions with long-term consequences. Growth plummeted, primarily in countries that have been reliant on cross-border trade. According to UNCTAD, Asia as a whole has become less reliant on imported intermediate inputs than the rest of the developing world. About 20% of the global trade in manufacturing intermediates originates in China. The decline in this trade reflects a growing maturity in the industries of emerging economies.

China has moved beyond assembling imported inputs into final products. It now produces many of the intermediate goods. A McKinsey report on globalization said that Chinese companies like Huawei are developing the sophisticated smartphone chips that China once imported from advanced economies. China conducts more research and development in domestic supply chains. Developed economies such as the US are home to millions of migrants from countries in Asia and elsewhere. These expats regularly send money online to support their families back home with remittances. A higher degree of self-reliance can raise the living standards in these countries in the long term.

Digitization, Automation, And Tech

Rapid digital transformation during the COVID-19 pandemic has enabled organizations to respond and thrive. According to IndustryWeek, the COVID-19 crisis will force many manufacturers to leverage technology not just for efficiency, but for sustainability. Autonomous vehicles can unload, stack, and reload containers at ports faster and with fewer errors. A Fully Autonomous Forklift Driver navigates on its own to perform a variety of materials transport logistics tasks. It achieves higher efficiency and safety standards than its manually operated counterparts. Blockchain shipping solutions can reduce transit times and speed-up payments. A McKinsey report estimates that automation, AI, and additive manufacturing could reduce global goods trade by 10% by 2030. Advanced economies are now automating many customer support services rather than offshoring them. This could significantly downsize the USD 160 billion global market for business process outsourcing (BPO).

COVID-19 started a new wave of digitization. This includes the large scale adoption of virtualization and cloud technology. Virtualization of servers, networks, desktops, and other IT resources enables countries to dynamically scale their digital infrastructures. It also provides more centralized management and control. Virtualization facilitates the allocation of resources to virtual machines in any part of the world instantly on demand. It substantially reduces the time, cost, and effort of scaling up and down with demand.

E-Commerce

A notable trend to emerge from the COVID -19 pandemic was a shift toward e-commerce, especially in developing countries. The use of e-commerce marketplaces enables significant cross-border flows. The growing reliance on digital technologies and connectivity requires the international community to create new rules to support digital free-trade. This includes refraining from charging customs duties on electronic transmissions. For example, movies and music are being traded digitally rather than physically through CDs and DVDs. Customs duties were imposed on the physical imports of these digitalized products. However their online imports escape customs duties. As a result of COVID-19 the trade in many digital products has exploded. Removing customs duties on electronic transmissions can foster global integration, spark innovation, and narrow the digital divide. An open and tariff-free internet leads to global economic growth. It makes trade more accessible, dynamic, and innovative.

A UNCTAD report from 2020 found that COVID-19 led to a further acceleration of the digital transformation. It reinforced the importance of addressing e-commerce barriers. E-commerce is creating better access to global markets for goods and services. Over 80 WTO members are currently negotiating trade rules on e-commerce under the Joint Statement Initiative (JSI). Rapid technological advances will increase the number and volume of products that may be transmitted electronically.

About the author:

Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.