Trade in a COVID-19 World, Unemployment Support, Bank Stress Tests



  • The Outlook For Trade: More Work From Home
  • Households Face A Fiscal Cliff
  • Banks Get Tested For COVID-19

In a number of areas, the pandemic is accelerating trends that were already in place. Online purchases, virtual meetings and live event streaming are all gaining momentum as the world adjusts to life in the time of COVID-19. Family lawyers are reporting an increase in separations as couples working from home struggle with too much togetherness.

On a broader scale, the pandemic has also accelerated the trend of countries separating themselves from one another. International travel has been severely curtailed, and international commerce may follow. The economic consequences of these developments will be significant and lasting.

Trade has been a four letter word in some quarters for more than a decade now. Imports and exports grew rapidly for a generation, with most countries better off for their participation in the global marketplace. Studies suggest that freer trade has increased incomes, reduced poverty, created jobs and generated substantial amounts of wealth. But studies also suggest that the benefits of globalization have been uneven, with some nations and some communities left behind.

Countries began looking inward in the wake of the 2008 financial crisis. The desire to support local firms and populations led to rising protectionism; measures of trade openness peaked in 2009 and have been declining ever since. The number of import restrictions tracked by the World Trade Organization (WTO) has risen for ten straight years.

Weekly Economic Commentary - 7/2/20 - Chart 1

The watershed elections of 2016 in the U.K. and the U.S. added impetus to the reevaluation of trade. The outcomes were a surprise, but the groundswell of public disaffection with globalism had been building for some time. In the years since, tariffs and non-tariff barriers have proliferated. China and the United States have come to view each other with increasing mistrust, and have pressured third parties to take a side in the rivalry.

In sum, trade was very much on the back foot when the pandemic began. COVID-19 has made regaining balance even more difficult.

When the outbreak arose in China, it prompted broad-based business closures. The interruption of supply from Chinese factories was a stark reminder of how dependent the rest of the world had become on China’s supplies. As we discussed recently, modern supply chains are built to be efficient, but we are learning that they aren’t very resilient.

“Global supply interruptions raise issues of economic security.”

The case of personal protective equipment (PPE) is telling. China accounts for about 60% of the global production of surgical gowns and masks. When the virus struck, China kept a greater share of that output at home, leaving others short-handed. China has also been accused of not being fully honest about when exports might return to normal, hampering the development of alternative capacity elsewhere.