The novel strain of coronavirus (COVID-19) has affected almost every sector of the global economy. It has particularly precipitated a significant slowdown in manufacturing, supply chains, and international trade in general. In the beginning, the slowdown was attributed to the overdependence on China’s manufacturing power for almost all global business operations, which meant that a small disruption of China’s economy would impact other economies of the world.
But now that COVID-19 has spread out to almost every corner of the globe, it is hard to tell how far-reaching its repercussions will be regarding international trade. Experts predict that if the virus isn’t contained soon, production could fall by up to 40 percent, which would translate to soaring unemployment and anemic economic activity for years to come.
How fast cross-border supply chains, and the global economy as a whole, will recover from this pandemic remains to be seen. We can, however, try to predict how international trade will look like after COVID-19.
Decreased International Trade
According to a recent analysis by the Chief Economist team at DG TRADE, the global trade for 2020 concerning the previous year will fall by about 9.7%. Exports of goods and services out of and around Europe, on the other hand, could fall by 9.2% while EU imports fall by an estimated 8.8%. In monetary value, the fall will account for about 285 billion and 240 billion Euros in exports and imports respectively. The most affected are the manufacturing sectors across European countries, particularly manufacturers of transport equipment and electrical machinery. Although this is happening in Europe, it could be a good representation of how things stand across the world.
More Companies Will Take their Businesses to International Markets
Shrinking economies will force companies to look for new growth opportunities beyond domestic borders. Even before COVID-19 came to town, companies were banking on international expansion, especially into Asia’s emerging markets, for their long-term growth prospects. Coronavirus will only be forcing them to expedite their pre-existing expansion plans. Expansion into overseas markets aside, there are other reasons why businesses will have to consider taking their businesses internationally. One of those reasons is to get closer to sources of raw materials. Many companies have been forced to stop operations due to disrupted supply chains; merely because they are unable to access raw materials. Opening plants right where the raw materials are is a sure remedy for that problem in case of a future pandemic.
Another reason for international expansion is to tap into growing labor markets across the world. Coronavirus has left many companies with sub-standard workforce grappling to keep up with changing consumer needs and working environments. After this is over, every employer will be looking to diversify their pool of talents, some of which cannot be found locally. When businesses go international, exports and imports will significantly be affected.
The international expansion brings many challenges, the biggest of them all being payroll. Multinational companies struggle to manage international payrolls after hiring overseas employees. They have to consider different time zones, differences in working hours for different regions, additional employee compensation laws, varying exchange rates, and unique tax laws per country. The surest way of ensuring that payroll to global employees is delivered on time is through international payroll providers. Such providers are well versed in international business requirements, which enable them to handle international payrolls with relative ease.
Removal of Export Restrictions on Essential Goods
Export restrictions have inflicted harm on everyone. As much as such restrictions increase goods availability in domestic markets and lower prices, COVID-19 has proven that this approach isn’t sustainable. Domestic companies tend to slow down their production when forced to serve local markets, their demand for supplies from world markets shrinks, and international prices for both raw materials and finished products fall through the cracks. That harms economies that rely on international markets for essential goods, especially food and medical supplies. For the sake of global stability, export restrictions will have to stop.
Governments Will Put More Emphasis on Medical Supply Chains
3rd world countries cannot produce enough PPEs and other medical supplies, as has been witnessed during this crisis. Most developed countries aren’t any better because they can’t seem to find a way of producing medical supplies cost-effectively. Labor shortages, mobility restrictions, and overdependence on imported inputs have also plagued production capacity in developed countries. Going forward, governments all over the world will be spending a significant portion of their international trade budgets on medical supplies. No country in the world can rely solely on its local production capacity to guarantee supplies of medical equipment, so countries will have to join hands to support global medical preparedness.
The unprecedented nature of the coronavirus pandemic makes it hard to predict how international trade will look like in the coming years, but experts believe that all economies of the world will struggle to recover from the current crisis. Some argue that the current slump will exceed the trade slump experienced during the global financial crisis of 2008 09. Well, that remains to be seen.