New OECD (Organisation for Economic Co-operation and Development) data shows that 2020 saw some of the largest reductions in trade since WWII. So where were these drops, and what will be the long-term consequences for global trade?
Frank Van Tongeren, Head of OECD Trade and Agriculture's Smart Data & Modelling Unit, shares the latest findings on services and goods trade, the impact of changes on the geography of trade, and what all of this might mean for the future of international trade.
Trade in services declined by more than twice as much as trade in goods and its recovery has also been slower. While the size of the drop in global trade relative to the drop in
output in 2020 was smaller than during the Global Financial Crisis (GFC), this was not related to the overall size of the trade impacts in 2020, but rather reflects the significant heterogeneity of trade and production impacts across specific goods, services and trade partners from COVID-19.
Trade in several types of goods plummeted, while that in others increased markedly. As a result, the variation in trade impacts across the different product categories in 2020 was not only larger than during the GFC, but also larger than in any other year during the past two decades.
The product structure of countries’ goods trade also changed significantly in 2020, indicating large adjustments. While some international supply chains came under pressure in early months of the pandemic, the data also show that supply chains were instrumental in the resumption of economic activity. The distance travelled by imported products actually continued to increase in 2020, largely as a result of China and other Asian countries filling supply gaps resulting from lockdowns and demand changes in other regions.
These shifts occurred in the context of significant perturbations in the international transport sector. While it is not known which of the changes in 2020 will be only short-lived, some seem to show signs of longer-term shifts or are likely to result in long-term adjustments. Above all, the unprecedented heterogeneity of changes in trade flows across products, sources and destinations seen in 2020 suggests high uncertainty and adjustment costs, and implies an increased need ‒ and incentives ‒ for consumers, firms and governments to adopt new or intensify existing risk mitigation strategies.