COVID-19 could tank trade by 32%, hitting electronics hardest

Electronics will be hardest hit by a global trade downturn of up to 32%, according to the World Trade Organization. (Pixabay)

The COVID-19 pandemic is expected to disrupt trade by as much as 32% in 2020, the World Trade Organization said Wednesday.

The WTO said global trade in merchandise could be down under the most optimistic scenario by 13%, but by 32% at worst, due to the pandemic.  The decline will likely exceed the trade slump in the global financial crisis in 2008-2009.

Nearly all regions will suffer, but exports from North America and Asia will be hit hardest. The finding is expected to be significant for U.S. electronics exporters who had already been concerned about the China trade war throughout 2019.

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“Trade is likely to fall more steeply in sectors characterized by complex value chain linkages, particularly in electronics and automotive products,” the WTO reported. The share of foreign value added in electronics exports recently was about 10% for the U.S. and 25% for China.  In the example of Apple’s iPhone (assembled in several Asian countries but mainly China) the export value to Asian countries is 24% while the remaining value comes from the parts that are supplied from many countries, according to WTO officials.

“The unavoidable declines in trade and output will have painful consequences for households and businesses on top of the human suffering caused by the disease itself,” said WTO Direct-General Roberto Azevedo, in a statement. He called the numbers “ugly” but said a trade recovery could occur in 2021, depending on the duration of the pandemic and the effectiveness of the response to it.  A 13% decline would be worse that the financial crisis, while a 32% decline would be worse in a single year than in three years during the Great Depression in the 1930

Azevedo noted that trade had already slowed in 2019 before the virus struck because of slowing economic growth and trade tensions like the one between China and the U.S. In 2019, world merchandise trade declined by 0.1%, compared to an increase of 2.9% in 2018.

According to the WTO, total US exports of merchandise in 2019 reached $1.6 trillion, a decline of 1%, while U.S. imports were $2.6 trillion, down by 2%.  China led exports in 2019 with nearly $2.5 trillion, about a 13% global share, compared to the U.S. share of nearly 9%. China was second to the U.S. in imports in 2019 with China imports at $2 trillion and a 10.8% global share, compared to the U.S. global share of 13.4%.

While services are not included in the WTO merchandise trade forecast for 2020, the WTO noted that most trade in goods would be impossible without services such as transport.  Declines in services trade during the pandemic may be lost forever, the WTO said.

Ironically, the WTO said information technology services like those to assist work from home, such as video conferencing, will benefit.

In an interview on CNBC, Azevedo urged more international cooperation in trade, especially regarding vital medical supplies needed to fight the pandemic.  “Self-sufficiency is not the right answer here,” he said.

He didn’t specifically mention the recent dispute between President Trump and 3M involving U.S.-made face masks that 3M had contracted to ship outside the U.S. The president had invoked the 1950s-era Defense Production Act to require 3M to ship millions of masks to U.S. locations instead, but an agreement with the Trump Administration allowed 3M to ship U.S.-made masks to Canada and Latin America, while 3M will import 166 million masks from its factory in China for use in the U.S.

One analyst agreed that a spirit of international cooperation on trade will help reverse trade declines. “If countries band together and have a coordinated recovery strategy, that would help the recovery greatly, but that’s unlikely to happen in the current political climate of distrust and each country will then have to focus on its own recovery,” said Jack Gold, an analyst at J. Gold Associates.

The pandemic and its economic and trade fallout are both “a world-class problem that needs world-class cooperation to solve,” Gold added. “I’m fearful that the current age of isolationism from others and ‘me-first’ will impede that progress.”

RELATED: COVID-19 crisis could sink 80% of tech firms, Tom Seibel says

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