Letter IEDI n. 1117—Pandemic, trade and global chains
The OECD analyzed the impacts of the COVID-19 pandemic on world trade and global supply chains in 2020 and 2021 in the recently released document “The impact of COVID-19 on directions and structure of international trade,” which this Letter IEDI discusses.
The study's data show that, despite the heterogeneity in the extent and speed of the pandemic's effects across different countries and sectors, in general most of them overcame the collapse of the first half of 2020 and exhibited a subsequent rebound.
Regarding trade in goods, the sectors most negatively affected were fuels, aircrafts, automobiles, mechanical machinery and steel, while personal protective equipment, pharmaceutical products, some foodstuffs, domestic appliances and electronics increased last year. In 2020, exports of services dropped 16.7% in value and recovered at a slower pace than merchandise international sales, which fell by 8.2%.
Under severe pressure in early 2020, global supply chains were essential for the resumption of international trade, according to the OECD, with China going through a rapid and robust recovery. The OECD points out that industries with more geographically specialized exports had the sharpest drops in the first half of 2020, but also the fastest resumption in the following half year.
In particular, semiconductors (electronic integrated circuits and microassemblies) recorded significant disruptions in the early stages of recovery, imposing bottlenecks at the end of 2020 in key sectors, such as automobiles. Rising demand for durable consumer goods such as televisions, video-game consoles, domestic appliances and computer equipment has also created pressure. It is worth remembering that 2019 was a weak year in this sector because of tensions between the US and China, due to the dispute for 5G, with Huawei at the center of the issue.
Changes in the structure and direction of trade also occurred due to significant disruptions in the logistics and transport sectors. There were not enough containers available "in the right port at the right time." Therefore, despite low demand, high idle capacity in the shipping industry and historically low crude oil prices, there were significant disturbances in international transport at the most critical moments of the pandemic.
By 2021, the problem has yet to be solved and global ocean freight rates have recently reached their highest levels since 2009. With the aviation industry far from being fully normalized, air freight remained more expensive than before the pandemic.
The OECD concludes that the unprecedented heterogeneity of changes in trade flows of goods and services across sources and destinations suggests high uncertainty and high adjustment costs in supply chains. It implies, therefore, the need for incentives for companies and governments to adopt new risk mitigation strategies or improve those currently in use.