The World of Trade These Days

17.04.2020 Tamara Oyarce

The COVID-19 pandemic is inflicting high and rising human costs worldwide, with over three million of people infected by the virus and over 211,000 deaths, we at the ECA are profoundly saddened by the loss of life that has occurred around the world. This health crisis has quickly evolved to become an economic crisis, with millions of people around the globe losing their jobs and income. Concerning projections from both the IMF and the WTO who have predicted the global economy will contract –3% and that international trade will fall sharply in 2020 respectively. In an ‘optimistic’ scenario, WTO economists predict the volume of global merchandise trade will fall by a staggering 13% compared to 2019.

Current Policy Priorities
These trade projections come on the backdrop of existing global trade tensions, volatility in commodity prices and an already contracting international trade sector. The imposition of restrictions to trade and freedom of movements among other measures - though necessary to respond to the current crisis - show a shift towards protectionism which in the long run does not benefit global trade.

Business - not as usual. Let’s talk Australia

Zooming into the Australian economy, the landscape also seems grim. Although from a health perspective we have (until now) successfully avoided an outbreak as those seen in China, Italy or the US, our economy is expected to suffer its biggest downturn since the Great Depression with unemployment set to reach up to 10% and remain high for at least two years beyond this crisis. The triple blow for Australian trade follows the unprecedented drought, the lengthy bush fire season now a global pandemic.

Trade, a key sector of the Australian economy -representing 21% of GDP- has inevitably been affected. Moreover, with one in five jobs in Australia being trade-related, the current landscape has without a doubt changed from the optimistic trade surplus figures released by the Australian Bureau of Statistics (ABS) for the last financial year.

It’s not all bad news: Where we are at and where we go from here

In the current uncertainty, there is hope and the emergence of opportunity. In the words of Roberto Acevedo, WTO’s Director-General: “[…] if the pandemic is brought under control relatively soon, and the right policies are in place, trade and output could rebound nearly to their pre-pandemic trajectory as early as 2021. ”

In Australia we have seen our Government - both at the Federal and State level - taking decisive action to protect Australians and the economy, with over $320 billion injected to the economy so far, which represents around 16% of GDP.

We applaud key trade-focused initiatives like the International Freight Assistance Mechanism, the increased funding in the Export Market Development Grants (EMDG) and the more recent initiative by Export Finance Australia are all critical to provide a lifeline to cash strapped businesses – many of them SMEs – to be able to remain afloat through this crisis.

Preliminary consultations with our members and the broader export community indicate that some key challenges our exporters are facing today relate mainly to:
  • Freight and logistics – difficulties with availability, cancellation of sea freight routes and increased freight costs that further reduce already thin margins
  • Supply chain issues – with problems with sourcing, challenges managing the just-in-time system, cancellation of contracts and constant delays
  • Export documentation – the need to digitise all certificates and the many export-related documents have posed challenges, translating in goods and cargo being held and creating all sorts of issues cross borders which are hard to solve remotely
Distilling from the above insights, we believe there is still a lot more to be done both at macro-Government level and at the firm level. From a Government perspective, some suggested ways to keep supporting our exporters include:
  • Keeping trade lanes open and promoting avenues for freer trade
  • Keep multilateral collaboration and coordination between countries as the current restrictions ease, and communicate those measures to the trade community
  • Extend Government support in the freight and logistics area, to other exporters beyond perishables and expand the discussions to include sea freight
  • Further explore the needs of the services export sector (e.g. Education and VET) which have less visibility in the overall trade landscape.
For our exporters, some useful insights include:
  • Take advantage of the current Government initiatives and seek support from industry bodies and relevant organisations to bring visibility to the issues that currently affect Australian exporter
  • Start to rethink the geographic diversity of your supply chains and explore alternatives for sourcing, if available
  • Regroup to have a clear strategy to re-enter markets where recovery is on the horizon and where demand will be increasing.
Keep in mind that while domestically we are still in shutdown, some of our key trade partners (e.g. China and South Korea) are re-emerging from this crisis and our exporters need to be ready to deliver and take advantage of these opportunities while big export economies like the US and the EU are still in hibernation.

In the midst of the current trade landscape, one thing is clear: there will be a before and after for the global economy and the Australian economy and the trade community will certainly have to adapt. It is important for the trade community to develop resilience and work together through this crisis as we start to slowly prepare for a recovery which will surely come.

We at the ECA are here to support you and guide you in navigating through this crisis, now more than ever.

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