National Post (National Edition)
COVID's hit on Canadian trade
COVID-19 has had profound implications for international trade. The pandemic led to a marked decline in the demand for traded goods, largely due to unemployment and decreased travel. Supply chains have been disrupted, various means of trade (including by air) have been hit hard, and some governments have responded with protectionist measures. From January to November 2020, total Canadian goods trade (exports + imports) was almost 12 per cent lower than during the same period in 2019.
Still, it could have been worse. The WTO initially forecast an overall drop in international trade of between 13 and 32 per cent in 2020 but has since revised its forecast to just a 9.2 per cent decline in merchandise trade volume, followed by a forecast increase of 7.2 per cent this year. Although a recovery is widely expected for 2021, whether it actually happens depends on policy responses and trends in the pandemic.
Such statistics have led commentators to compare COVID-19 to the Great Trade Collapse during the global recession following the financial crisis of 2008. In that episode, global trade declined 12 per cent, while Canada's trade fell 21 per cent in the first year. The downturn marked “the steepest fall of world trade in recorded history and the deepest fall since the Great Depression” (VoxEU). Has COVID-19's hit on trade been as bad? Will it be?
In this country, trade in goods began to fall last March. In 2008 the decline began in October. The chart displays monthly percentage drops in trade in goods in comparison with pre-crisis levels during both crises. The COVID-induced decline was faster, though both crises resulted in similar drops. Canadian trade has recovered much more quickly during the pandemic than it did after the financial crisis, however. As of November, trade in goods was almost at the same level as before the pandemic, despite having fallen 33 per cent at its lowest point. In general, OECD countries have recovered from the pandemic faster than Canada, but only slightly.
Despite the relatively stronger recovery in Canadian trade, the COVID-19 crisis warrants various policy responses, including acting with trading partners to prevent forms of protectionism that could worsen the situation. Canada should also undertake a comprehensive re-evaluation of its trade policy to prepare for future shocks to the global trading system. The key lessons from the great trade collapses of 2008-09 and 2020 are that we live in a hyper-connected world and the impact of demand and supply shocks propagate quickly.
But whereas the 200809 shock was largely a demand-side shock, 2020 is both a demand and supply shock, as manufacturing activity has been disrupted by the pandemic. This means supply chains are being disrupted, and manufacturers everywhere are facing shortages in imported industrial inputs. This is fuelling calls for protectionism to somehow reduce reliance on imports. Such a response would deepen the trade and economic crisis, not solve it. Instead, Canada should work with other committed multilateralist economies to co-ordinate efforts to rebuild and strengthen the WTO and the global trading system and to ensure protectionism does not emerge as the answer to the current challenges. If we don't, we will be comparing the 2020 trade collapse to the other great trade collapse in history, that during the Great Depression, when protectionist trade policies prolonged the trade collapse and slowed down economic recovery.