Global trade has contracted sharply in the past year, as the COVID-19 pandemic and supply chain disruptions have dampened consumer demand and lowered commodity prices. According to the World Trade Organization (WTO), global merchandise trade volume fell by 5.3% in 2022, the biggest decline since the global financial crisis in 2009. The WTO also projected that global trade would grow by only 4% in 2023, below the pre-pandemic trend of 5.5%.
The main factors behind the global trade slump are the health and economic impacts of the pandemic, which have reduced consumer spending and business investment, especially in services and travel. The pandemic has also disrupted global supply chains, causing shortages of raw materials, intermediate goods, and shipping containers. These shortages have led to higher costs and delays for exporters and importers, affecting their competitiveness and profitability.
The global trade slump has also been exacerbated by geopolitical tensions, trade wars, and protectionist measures among major trading partners. The US-China trade conflict, which started in 2018, has imposed tariffs and sanctions on billions of dollars worth of goods and services, hurting both countries’ exports and imports. The UK’s exit from the European Union, which took effect in January 2021, has created new barriers and uncertainties for trade between the two regions. The recent coup in Myanmar, which triggered international sanctions and protests, has disrupted trade flows in Southeast Asia.
Global trade slump hurts export-dependent economies the most
The global trade slump has hurt many economies around the world, but especially those that depend heavily on exports for their growth and income. These economies include China, Germany, Taiwan, Vietnam, Canada, and others. These economies have seen their exports shrink or stagnate in the past year, affecting their industrial production, employment, income, and fiscal balance.
China, the world’s largest exporter, reported a 4.7% year-on-year decline in exports in July 2023, the biggest drop since February 2020. China’s exports have been hit by weak demand from its major markets, such as the US and Europe, as well as by rising costs and competition from other suppliers. China’s imports also fell by 3.4% year-on-year in July 2023, reflecting lower domestic consumption and investment.
Germany, the world’s third-largest exporter, saw its exports fall by 8.5% year-on-year in June 2023, the steepest decline since April 2021. Germany’s exports have been affected by lower demand from its European neighbors, as well as by supply chain bottlenecks and labor shortages. Germany’s industrial production also dropped by 1.3% month-on-month in June 2023, reaching a six-month low.
Taiwan, a major exporter of electronics and semiconductors, reported a 12.8% year-on-year decrease in exports in June 2023, ending an 11-month streak of growth. Taiwan’s exports have been hampered by a surge in COVID-19 cases in May and June 2023, which forced some factories to shut down or reduce capacity. Taiwan’s exports have also faced pressure from China’s crackdown on its technology sector and its military threats.
Vietnam, a fast-growing exporter of textiles, footwear, and furniture, recorded a 22% year-on-year plunge in exports in June 2023, the worst performance since March 2009. Vietnam’s exports have suffered from a sharp drop in prices for its commodities, such as crude oil, coal, and iron ore. Vietnam’s exports have also been disrupted by a severe outbreak of COVID-19 in July and August 2023, which forced many factories to close or operate at limited capacity.
Canada, a major exporter of oil and gas, metals and minerals, and agricultural products, saw its merchandise trade balance record its second consecutive monthly deficit in June 2023, as its exports fell by 5.7% month-on-month. Canada’s exports have been dragged down by lower prices and volumes for its energy products, as well as by transportation challenges and trade barriers for its agricultural products. Canada’s imports also declined by 3.1% month-on-month in June 2023, reflecting weaker domestic demand.
Global trade slump may require more policy support and cooperation
The global trade slump may require more policy support and cooperation from governments and international organizations to revive trade flows and support economic recovery. Some of the possible measures include:
- Providing fiscal stimulus and monetary easing to boost domestic demand and income for consumers and businesses.
- Enhancing social protection and safety nets to protect workers and vulnerable groups from the adverse effects of the trade slump.
- Investing in infrastructure and digitalization to improve connectivity and efficiency of supply chains and reduce trade costs and barriers.
- Promoting trade facilitation and diversification to simplify trade procedures and expand trade opportunities for exporters and importers.
- Resolving trade disputes and tensions through dialogue and negotiation and adhering to multilateral rules and norms.
- Strengthening regional and global cooperation and coordination to address common challenges and opportunities for trade and development.