Trade in the time of Covid19

Global trade has continued to recover, albeit that volumes are still well below pre-crisis levels and facing significant uncertainty, as several major trading economies engage new social distancing measures to tame the spread of Covd19. Beyond the direct impact of the pandemic, new policy measures on trade and how corporates think about supply chains are likely to be the more important long-time drivers of global trade.

Starting on a positive note, the latest wave of economic closures has seen an effort to keep factories open, thus easing the impact on trade in goods. Trade in those services that require proximity delivery, such as travel, tourism and education, on the other hand, remain adversely impacted. Moreover, in contrast to trade in goods, which in recovery can hope to benefit from pent-up demand, this effect is far less prevalent for services. For example, much as people may rush to replace an older car in recovery, they tend not to double up on holidays. Much as November 2020 is likely to bring new cyclical headwinds for trade, it could bring some structural tailwinds.

On 3 November, the US elected the next President, House and Senate. Just how this new administration will position itself on key trade issues remains an open question, but hope is to see America return to the global stage in a more constructive leadership role. A fast track unwind of tariffs in place seems unlikely, but hope is to see some softening with more corporate exclusions. More fundamentally, a hawkish stance on China seems unlikely to change anytime soon. Should the US choose to re-join the Paris Agreement, this could mark a first step to closer cross Atlantic ties.

On 15 November, fifteen Asian countries, including the ASEAN countries, China, South Korea, Australia and New Zealand, signed the Regional Comprehensive Economic Partnership (RCEP). In size, the deal is impressive covering an area that compromises just under 30% of global GDP. In content, the agreement is shallow, mostly consolidating already existing agreements although importantly establishing a trade agreement between Japan, China and South Korea. Moreover, implementation times are lengthy. There is nonetheless value in the agreement, and not least on Rules of Origin, which are expected to ease the operation of supply chains in the region.

Closer to home, hope is that at the time this article is printed, that a Brexit deal may be reached albeit that the path to success is narrow for a November agreement. Even with an agreement in hand, the future trade agreement between the UK and the European Union will mark a very significant loss compared to present day arrangement.

Concluding on the European Union, we note that true to historical experience, this crisis is delivering a leap forward for integration. The Next Generation EU recovery programme, albeit still pending parliamentary approval, holds promise of new convergence. The proposal for a European Health Union, announced mid-November, marked a further positive. Hope is to see a further impulse also for Banking Union and Capital Markets Union. Here too, November could mark a turning point.


Michala Marcussen, Societe Generale’s Group Chief Economist

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