Globalisation: World Trade in 2020 & 2021

In this video we look at some of the consequences of the pandemic for the level and pattern of global trade in goods and services.

A V-shaped shock to the global trading system

Global trade in goods and services experienced a deep slump in 2020 due to the COVID-19 pandemic. But the recovery in trade has been faster than in the aftermath of the Global Financial Crisis. This in turn has been a factor behind the steep increase in the cost of global shipping which has increased costs and meant delays for many import businesses.

The pandemic has been a shock to global trade. For many countries, the value of exports of has fallen sharply leading to negative impacts on growth and employment. But other countries have fared better especially those who managed the public health crisis better and started to recover more quickly.

Overall, world trade in goods and services amounted to US$ 22 trillion in 2020, a 12 per cent decline compared with 2019. The COVID-19 pandemic led to trade in goods declining by 8 per cent and trade in commercial services contracting by 21 per cent year-on-year in 2020.

Trade in Medical Products

For countries with a competitive advantage in producing and exporting medical products, the pandemic has seen a surge in the value of their exports since 2020

Trade in medical goods increased significantly in 2020, with trade in personal protective products growing the most (+47.2 per cent).

In the first half of 2021, the medical goods sector comprised 6.1 per cent of total world trade, compared to 5.4 per cent for the second half of 2019, just before the COVID pandemic.

Face masks provide an interesting example of applied comparative advantage. China is the world’s leading exporter (56% of the total) but it also imports non-woven fabric from Japan and the United States. Here in the UK, 65% face masks were sourced from China during 2020.

The global vaccination programme is an example of derived demand. As spending on vaccines increased, so too did international demand for and sales of rubber gloves, syringes and needles. This has boosted the value of global trade in these key products.

When it comes to the manufacturing of rubber gloves, four of the top five suppliers were countries in Asia and accounted for 86 per cent of the export market for gloves, with Malaysia's share at 54 per cent.

Trade in Travel and Tourism

Travel - including tourism and related services – plunged in 2020 as travel restrictions were imposed due to the pandemic.

Countries with a high percentage share of exports, jobs and output tied directly to their tourism and travel industries have suffered heavily during the pandemic. This is a good contextual example to use of over-dependence on tourism as a source of economic growth and development.

Trade for the world's least developed countries

Least Developed Countries goods exports declined by 12 per cent in 2020, compared with 9 per cent for the rest of the world.

Exports are crucial for the least developed countries as a pathway to drive growth, lift per capita incomes and reduce extreme poverty. According to the World Bank, because of the pandemic, extreme poverty rose in 2020 for the first time in over 20 years and around 100 million more people are living on less than $1.90 a day (PPP).

The Least Developed Countries have limited ability to spur an economic recovery through fiscal stimulus packages, and they are highly dependent on trade recovery as a source of economic growth.

Smaller and poorer economies tend to be more fragile and less diversified than larger economies.

Trade for the UK in 2020 and 2021

In 2020:

• UK exports fell 13.6%
• Imports into the UK fell 14.3%

In 2020:

• The UK maintained their position as 8th largest exporter of goods
• UK maintained their position as 2nd largest exporter or services

Final Comment

The pandemic has affected world trade in services more than trade in goods. Trade in travel and tourism services slumped dramatically, but trade in telecoms and IT services such as Zoom boomed. Trade in computer hardware has also surged benefitting a number of manufacturing countries.