Covid-19 has delivered one of the biggest shocks to global trade since the Great Depression.
This year, global trade is expected to decline by 20% and not regain its 2019 absolute level of US$18 trillion until 2023, a report by the Boston Consulting Group (BCG) says.
Global trade flourished with the liberalisation of markets over the years, although scenarios such as Brexit and friction between the United States and China and the European Union (EU) had threatened global free trade.
But the pandemic has triggered more damage. BCG cited two negative effects – falling demand and a global recession. The other is that global lockdowns, the control of shipments arriving at ports, and export bans on some medical and agricultural products has disrupted existing supply chains.
It is hard to predict when the global economy will recover. Lower trade flows are because of decreased demand for traded goods due to deep recessions and structural economic damage. Low demand will, in turn, affect pricing, particularly commodities.
The pandemic has also exposed structural flaws. It is time companies rebuilt the resilience of their manufacturing and supply networks, even though it means spending more. They must be ready for future shocks.
Amidst all this, South-East Asia will continue to be one of the strongest gainers, increasing two-way trade by around US$22bil with the EU, US$26bil with the US, and US$41bil with China by the end of 2023.
Based on its own simulations, BCG says the combination of geopolitical shifts, economic recession and new supply chain structures is likely to lead to a short-term decline in global trade of 20% to 30%, with full recovery unlikely before 2023.