Posted on September 21, 2020
By Eun-Young Jeong and Tom Fairless
Global trade is rebounding much more quickly this year than it did after the 2008 financial crisis, lifting parts of the world economy and defying predictions the pandemic could send globalization into permanent retreat.
When the new coronavirus hit earlier this year, international trade in goods suffered the biggest year-over-year drop since the Great Depression. Economists warned of rising protectionism, and some companies said they would reassess overseas supply chains that were vulnerable to unexpected shocks.
Trade remains below prepandemic levels. Still, it has snapped back robustly and had recovered about half of this year’s historic loss by June, according to calculations by the Kiel Institute for the World Economy, a German think tank.
New export orders were growing in 14 of 38 economies measured by research firm IHS Markit in August, compared with just four in June. Others were trending in the right direction and could start seeing growth soon.
Households are spending on imported goods, sometimes sup-ported by government cash, even as spending on local services like restaurant meals and trips to the cinema has fallen—and all those goods have to come from somewhere.
China, whose factories were among the first to reopen from pandemic shutdowns, recorded 9.5% growth in outbound shipping in August compared with the previous year. Its Ningbo-Zhoushan port, among the world’s largest, has seen trade volume surpass 2019 levels with increasing frequency since July, according to Quantifiable Technology, a Paris-based data company.
South Korean exports in the first 10 days of this month were just 0.2% below the same period last year.
Shipping activity in some other U.S., Asian and European ports also has normalized, according to global freight volume data. Freight rates have risen far above pre-Covid-19 levels on some key routes as demand for goods returns, hitting a record high this month for standard container spot prices from Shanghai to California.
The recovery isn’t being felt evenly everywhere, and trade still faces fierce headwinds, including a possible coronavirus resurgence this fall.
Still, countries where trade has improved, including China, South Korea and Germany, are seeing their economies bounce back better than countries that rely more heavily on services, though additional factors, such as their relative success in containong Covid-19, are also at play.
China is on track to be the only major econ-omy to grow this year. In South Korea and Germany, Barclays expects the economies to contract by 1.5% and 5.3% this year, respectively, much less than countries tuned more toward services like Italy and Spain, which are forecast to contract by 9.3% and 10.7%.
That suggests trade could play a bigger role in the world’s economic recovery than anticipated, if the trend continues.
“Trade is one sector of the economy that has proven to be more resilient,” said Shaun Roache, chief economist for the Asia-Pacific region at S&P Global. “Even if you can’t go on that vacation, you can buy yourself a new laptop,” he said.
Other exporters say they are hiring again and even contemplating new investments.
Ecopro BM Co., a producer of battery materials in Cheongju, South Korea, is on track to expand production capacity this year and has added more workers as demand keeps rising, said Kim Kwang-my-oung, an investor-relations manager. He said sales of the company’s materials—some of which go into batteries that power Tesla Inc.’s cars—have benefited from growing demand for electric vehicles, especially in Europe.
In its recent analysis of global trade, the Kiel Institute examined data from the 2008-09 recession and found it took 13 months for trade volumes to recover to the level they reached after only two months this year, said Gabriel Felber-mayr, the institute’s president.
One reason is that this year’s trade crunch was largely caused by physical barriers to trade rather than a long-term collapse in demand, he said. That meant exports and imports could recover quickly when governments reopened borders and eased restrictions on social activity.
And while the 2008-09 global downturn was the result of a banking crisis that dried up financing, governments have moved quickly this year to backstop banks and guarantee trade finance, he said.
The challenges ahead are sizable. Business sentiment has slid recently in some countries, as Covid-19 infection rates rise again and tighter restrictions return. Vietnam’s trade recovery slowed after a fresh wave of Covid-19 infections in late July.
The recovery could also level off soon in Europe and elsewhere as stimulus programs are phased out.
Eva Chan, sales manager at Guangdong Jiusheng Electronics Technology Co., a television assembler in China, said her company is now exporting three to four containers a month, compared with four to six in prepandemic times.
“You can tell the economic situation in foreign countries is not very good,” she said. “Many of our customers are pressing us to hand over the goods as soon as possible after placing orders” because they are worried about another downturn and want to sell everything before buyers change their minds.
“Still, we made it through the epidemic,” said Ms. Chan, who said she is hopeful the recovery will continue as long as other countries curb the disease.
Another risk is that major importers like the U.S. could react negatively to the trade recovery and adopt more-protectionist measures as they see countries such as China rebounding.
China’s share of global-merchandise trade jumped from 13.6% in the last quarter of 2019 to 17.2% in the second quarter of this year following the pandemic, according to Oxford Economics. The U.S. recently recorded its widest trade deficit since 2008, as the pandemic put a brake on service exports while goods imports recovered.
Many companies, meanwhile, are still rethinking their supply chains, which could alter trade patterns in the longer run.
WILO, a pump manufacturer with around 8,000 staff based in northwest Germany, says it will set up a second headquarters in China this year, followed by a third headquarters in the U.S., so it can have regional hubs that act largely autonomously. The idea is to insulate WILO against future trade disruptions and protectionism.
“The corona pandemic painfully illustrates the weaknesses of the current world economic order with all its interlinked value chains,” said Oliver Hermes, WILO’s chief executive. He says WILO plans to produce more products in-house as part of what he calls “Globalization 2.0.”
Even if trade shapes up differently ahead, its resilience in recent months suggests some of the direst predictions about globalization’s demise might have been premature. In the wake of the long-running trade war between the U.S. and China, global trade as a percentage of world gross domestic product slipped to its lowest level in three decades last year, according to Moody’s Analytics.
In places such as Germany, many businesses have little choice but to double down on exports, which are worth around 47% of the nation’s economic output, four times the share in the U.S. Data from the German Mechanical Engineering Industry Association, or VDMA, a trade group, shows some German manufacturing companies are scaling up investments overseas.
The European market is too small for many German exporters to survive just by selling locally, said Ulrich Ackermann, the VDMA’s man-aging director for foreign trade. “That means we need the international markets,” he said.
Write to Eun-Young Jeong at EunYoung.Jeong@wsj.com and Tom Fairless at tom.fairless@wsj.com
Bingyan Wang contributed to this article.
Source: Wall Street Journal
