The Economist UK - 28.03.2020

The EconomistMarch 28th 2020 71

1

C

ontainer-ship navigators, box-tick-

ing customs officials, logistics wizards,

truck drivers and warehouse nightwatch-

men: all are familiar with dealing with

glitches involving international trade,

from strikes to trade wars. But with fore-

casters predicting a slump in global gdp

this year, even their most creative thinking

cannot keep $25trn of goods and services

flowing around the world.

Trade is the conduit through which eco-

nomic pain passes from one country to an-

other. Even simple products rely on elabo-

rate supply chains: a humble cup of coffee

requires 29 firms to collaborate across 18

countries, according to one estimate.

Shocks convulse in either direction. A port

closure or customs delay can cripple pro-

duction elsewhere. If consumers stop buy-

ing cars and phones, manufacturers and

workers in distant lands feel the pinch.

When world output, at purchasing-

power parity, fell by 0.1% in 2009, trade vol-

umes collapsed by a whopping 13%. Quar-

terly volumes fell by even more (see chart).

Weaker demand in America and the Euro-

pean Union rippled along trade routes to

Canada, China, emerging Asia, Japan and

Mexico. One study finds that 27% of the de-

cline in American demand and 18% of that

in the European Union was borne by for-

eign producers.

The shock coming this year threatens to

be far more brutal. When one of the world’s

economic giants sneezes, the rest of the

world catches cold. Now everyone is

coughing. Factory closures are being exac-

erbated by a rise in trade barriers. And glo-

bal demand is plummeting as households’

incomes dry up and cash-strapped firms

put their investment plans on ice.

At first the virus infected manufactur-

ing in China, which typically supplies

nearly 10% of the world’s intermediate-

goods trade. The dollar value of Chinese ex-

ports in January and February was 17% be-

low what it was a year earlier (though

American tariffs may also have contributed

to the weakness). As delivery times

stretched out for longer and longer, com-

panies had to pause production for lack of

components.

Now factories across Europe, North

America and Asia must cope not only with

uncertain supplies of parts from China but

also with sick workers and a dizzying array

of local and national shutdowns. Audrey

Ross of Orchard International, a company

based in Canada that trades products in-

cluding mascara and bath sponges, says

planning has become a nightmare. One

customer in Germany is closed; another in

France is open. Warehouses in America

have shorter opening hours. Diversifying

away from China had at first seemed like a

sensible strategy. Now nowhere is safe.

To make matters worse, barriers to trade

are going up. More than 50 governments

have restricted exports of medical sup-

plies, 33 of which acted after the beginning

of March. Tourism has been crushed—it ac-

counts for 8% of global services trade.

Flight cancellations have seen the cost of

air freight, much of which goes in the belly

of passenger jets, soar. Vaughn Moore of

ait Worldwide Logistics, a freight-for-

warding company, reports that rates have

World trade

Trucks, queues and blues

WASHINGTON, DC

If you thought the trade war was bad for cross-border commerce...

On edge

Sources: CPB;

IHS Markit

*Based on a survey of purchasing executives,

activity compared with the previous month

20

10

0

-10

-20

2007 2015

Global trade volumes

Three-month moving

average, % change on

a year earlier^70

60

50

40

30

2007 2015

Purchasing

managers’ index

New export orders*

Euro area

↓Contracting

United

States

Finance & economics

72 The mortgage market sickens

72 Doling out greenbacks

73 Is the ECB’s latest salvo enough?

73 America steps into the oil market

74 Buttonwood: Special situations

75 Free exchange: Paying for the

pandemic

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