By now, we all know that global and trade commerce suffered a grievous blow from COVID-19 and the associated lockdown protocols across nations.
In fact, I’d imagine the economic collapse that unfolded during the first half of 2020 will eventually be described by economists as one of the single-largest demand shocks of the modern era (whatever your definition of “modernity” happens to be).
Of course, it was also a supply shock, as the flow of goods and services was curtailed by unprecedented shut-ins. Global trade shrank the most since the financial crisis in March according to the Dutch government planning agency CPB, and it’s likely to get worse once the delayed numbers for April are in.
The World Trade Organization has warned world merchandise trade is set to plunge by between 13% and 32% in 2020 due to the pandemic.
Given all of this, I suppose you could argue there’s little utility in flagging the collapse in US trade that unfolded in April, as documented in data out Thursday. After all, it was expected. We all know it’s bad. Why rubberneck the car crash? Can’t we just look forward to brighter days?
But readers will begrudgingly agree that we’d all be derelict in our roles as keen observers of markets – witnesses to the unfolding macro narrative – not to at least acknowledge that the world’s largest economy logged the biggest decline in exports in comparable figures going back more than a quarter century in April.
Shipments plunged 20.5% for the month, the BEA said Thursday, the most dramatic drop in data going back to 1992, and more than double March’s decline, which was itself a record.
Imports plunged nearly 14% over the month – that too is a record.
The overall trade deficit was the widest in eight months, but that’s an afterthought at this point. Nobody cares about the trade deficit anymore and most economists will tell you that at least as far as bilateral deficits are concerned, trade gaps are not the appropriate focus of policymakers.
It goes without saying that worsening tensions with China aren’t going to help this situation. Indeed, another Sino-US trade war will spill over into other trade-sensitive economies like Japan and South Korea, and before you know it, it’ll be 2018 all over again, only in a US election year.
You shouldn’t kid yourself. In addition to the first-order effects of the pandemic on global trade and commerce (i.e., the damage from simultaneous demand and supply shocks), the events of the last four months are set to reinvigorate the protectionist push and prompt countries to consider on-shoring in an effort to protect supply chains.
“Without being melodramatic, COVID-19 is like the last nail in the coffin of globalization”, Carmen Reinhart told Bloomberg late last month. “The 2008-2009 crisis gave globalization a big hit, as did Brexit, as did the US-China trade war, but COVID is taking it to a new level”.