Global trade has experienced a huge boom over the past century due to advances in transport and information technology. Particularly over the past couple of decades, a country like China has been able to position itself as a global manufacturing hub.
The country has also led the rest of the world in the exports of consumer items, and parts that require assembling elsewhere. The COVID-19 pandemic, originating from China, has caused a lot of disruption that has significantly reduced output or even completely halted production in some areas.
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After months of economic and social inactivity due to the Coronavirus lockdowns, countries were eager to reopen and return to, at least, a semblance of normal, regular life. These reopening steps were not without consequences as a resurgence of the virus spread was experienced.
The Impact Fronts
Some states in the USA had to reenact the lockdowns, while regions in China underwent widespread testing, as well as reintroducing some form of lockdown too. In this post, we explore the impact of the resurgent outbreaks on the global export scene.
The decrease in man-hours: Manufacturing is one of the few industries where the now popular “Working from Home” system is difficult to implement. Manufacturing crews have to be on-site to get the job done, but with people trapped at home due to lockdowns, operators are unable to work, consequently resulting in lower output and exports.
Another way in which these effects play out is in manufacturing companies having to lay off their workforce due to decreasing revenue. It then becomes a circular cause and effect cycle of the lockdowns leading to fewer hands on plants, reducing revenue, and in turn, staff lay-offs.
Scarcity of consumer goods or supply glut: As production levels drop, consumer goods producers like China, the US, and some European countries may not meet the regular demand for export commodities; hence, the potential shortage of those products.
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Conversely, there is also the likelihood of a drop in demand as the rest of the world is equally dealing with some form of lockdown and reduced activities too (this was the case with crude oil where futures were traded at negative prices due to weak demand). Whichever way this plays out, it will ultimately lead to an imbalance in global trade, which is not something we would like to see happen.
Unavailability of Assembly Parts: Manufacturers of more complex technological products like cars or heavy machinery depend on manufacturing hubs like China for parts to be assembled at local plants. A resurgence of COVID-19 cases in manufacturing hubs like this will lower the output of such plants, consequently affecting the global supply chain negatively.
All Hope is not lost
While the outlook may not seem so bright based on the above factors, governments and world leaders are rising to the challenge. There have been a series of capital injections and efforts to stimulate economies to get things running again.
Hopefully, these efforts will help to ramp up production on the supply side (exporting countries) while boosting economic activity on the demand side (importers and consumers) to return some balance to global trade.
Harrison Global Capital 