COVID-19 has been marked by the World Health Organization as the “pandemic”, the highest level of disease transmission. It is foreseeable that the epidemic will continue to spread globally. As a result, the world’s major economies, China, Europe, the United States, Japan, and South Korea will all be deeply affected by the COVID-19. The COVID-19 will inevitably affect the world economy and the Chinese economy. Global trade and China’s foreign trade will also be affected.
The impact of the COVID-19 on global trade
Even in the absence of COVID-19, global trade has entered a period of sluggish growth in 2019. The 2009 international financial crisis triggered a major recession in global trade, and trade fell by 12.7%. Although there was a strong rebound in 2010, the actual growth rate reached 13.9%, and the growth rate in 2011 also reached 5.2%, but the actual growth rate from 2012 to 2016 was lower than 3%, and the average growth rate was only 2.3%, which was lower than domestic production in the same period. GDP growth rate. Global trade rebounded strongly in 2017, with a growth rate of 4.6%, but in 2018 it began to fall back to 3.0%. According to the latest WTO data, in the first three quarters of 2019, the actual growth rate of global trade was 0.34%. Based on this, it is expected that the actual growth rate of trade for the whole year of 2019 will be less than 0.5%. This will be the lowest growth rate of global trade in a decade. Without considering the impact of the epidemic, the World Trade Organization, the International Monetary Fund, and the World Bank predict that the growth rate of global trade in 2020 will be 0.9 percentage points higher than that in 2019. Taking into account the base period effect, it is estimated that the global trade growth rate in 2020 will be between 1.5% and 2%, which is still lower than the average value since 2011. Another example that shows that global trade growth in 2020 will be sluggish is the trade rain index released by the WTO in mid-February this year, showing that global trade growth in the first quarter of 2020 will remain sluggish.
The intermediary of the COVID-19’s impact on global trade is demand and supply. The International Monetary Fund and other institutions all believe that the COVID-19 will have a large negative impact on the growth of the world economy. The decline in world economic growth will inevitably affect demand. In addition, studies have shown that when the economic situation is bad, the demand for durable goods is often delayed, especially during the epidemic, the demand for durable goods will be more negatively affected. The impact at the supply level lies in the impact of the COVID-19 on enterprise production. The isolation of people caused by the COVID-19 and restrictions on the movement of people across regions will affect the labor, capital, technology and other factors of production required by companies, and even cause companies to shut down directly. The impact of the COVID-19 on demand and supply will directly affect the operation of global trade.
The restrictions on freight transportation and the division of labor in the global value chain caused by the COVID-19 will increase the impact of the COVID-19 on global trade. When demand and supply are impacted, freight restrictions will also affect the transportation of goods, which will further amplify the impact of the COVID-19. The division of labor in the global value chain means that to produce a product, different parts and components have to cross multiple borders, thus further amplifying the impact of the COVID-19. The countries currently affected by the COVID-19, including China, the United States, and Europe, are the hubs of the world’s three major regional value chains, Asia, North America, and Europe. In view of the decisive role of these economies in the demand and supply of final and intermediate products, even if the epidemic does not Serious areas will also be implicated.
Therefore, the COVID-19 has made the already sluggish global trade worse and is more likely to cause the first negative growth in global trade in a decade. If the COVID-19 triggers an international economic or financial crisis, the economic crisis superimposed by the epidemic will make trade more affected. According to the Australian National University’s simulation of the impact of the COVID-19 on global GDP, it can be found that under the baseline scenario, the COVID-19 will cause a decline in global GDP by approximately 1.91 percentage points. Based on the assumption that trade and GDP elasticity is roughly equal to 1 in recent years (1% GDP growth drives 1% trade growth), this will cause trade to fall by 1.91 percentage points. Based on the above forecast that the global trade growth rate in 2020 will be between 1.5% and 2%, the actual growth rate of global trade in 2020 will be between -0.4% and 0.1%. This means that the global trade situation in 2020 is not optimistic, and the possibility of negative growth is very high.
It should be pointed out that from a long-term perspective, there are not many years of negative growth in global trade. The negative growth in trade in 2020 is in line with the historical law of negative growth once in a decade. In the 170 years since 1850, without considering the First and Second World Wars, only 16 years have experienced negative growth in global trade. In other words, there is negative growth in one-tenth of the year. The longer and more serious one is the three consecutive years of negative growth (1930-1932) in the Great Depression in the 1930s. There were also two consecutive years of negative growth in 1861-1862 (American Civil War) and 1981-1982 (deflation), but the decline was not large. The other years are all negative growth of a single year. The most recent negative growth was the great recession in global trade triggered by the international financial crisis ten years ago, with a negative growth of 12.7%. If the epidemic causes a negative growth in global trade, it is also in line with the law of history, that is, an average of once a decade of negative growth. The difference is that the historical negative growth in trade was basically caused by the economic crisis or financial crisis, and this is the first time that the COVID-19 has caused a decline in trade.
The impact of the COVID-19 on China’s foreign trade
The COVID-19 will inevitably have an impact on China’s foreign trade. The COVID-19 first broke out in China, first affecting China’s imports and exports by affecting China’s demand and supply. Subsequently, although the COVID-19 in China was under control, the outbreak of a COVID-19 abroad further affected China’s foreign trade by affecting foreign demand and supply. Originally, if the COVID-19 only broke out in China, with the control of the COVID-19, it would only affect China’s foreign trade in the first quarter. However, due to the international spread of the COVID-19 and optimistic circumstances, the COVID-19 may not be brought under control until June. Therefore, the COVID-19 will further affect China’s foreign trade in the second quarter.
China’s foreign trade data released by the General Administration of Customs also showed that China’s foreign trade in February was indeed hit hard. The customs did not release separate data for January and February, but a combined release from January to February. The impact of the epidemic on foreign trade in February can only be calculated. In dollar terms, my country’s exports fell by 17.2% and imports fell by 4.0% from January to February. Since my country’s foreign trade was basically unaffected by the COVID-19 in January, the situation should be very good. In February, my country’s foreign trade situation should be very poor, with a relatively large decline. As the COVID-19 spreads internationally, my country’s foreign trade in the first half of the year will be affected. Even if the epidemic is brought under control in the second half of the year, foreign trade will be affected to a certain extent if it takes time for the world and China’s economy to recover. According to our calculations, the COVID-19 will cause the annual export growth rate and import growth rate to drop by 3.89 and 4.47 percentage points, respectively, compared with the scenario where the COVID-19 does not occur. If the development of the COVID-19 exceeds people’s expectations and moves towards a very unoptimistic situation, the annual growth rate of exports and imports will drop by 6.32 and 6.99 percentage points respectively. Regardless of the scenario, China’s foreign trade will experience negative growth in 2020.
But China does not need to worry too much about this. First of all, China’s foreign trade situation is highly correlated with the global trade situation. Under the impact of the COVID-19, the global trade situation is very bad, and it is bound to be difficult for China’s foreign trade to survive alone. At present, the Chinese government has introduced measures to stabilize foreign trade to actively respond to the severe situation of foreign trade. Measures to stabilize foreign trade are of course necessary, but we should also realize that if the global trade situation is not good, China’s export stimulus will hardly have a significant effect. Because of poor external demand, even if Chinese companies export, it is difficult to find orders. From an import perspective, even if China stimulates demand and there is import demand, foreign countries may not be able to produce it.
Second, China’s foreign trade volatility itself is relatively large. In fact, as far as the growth rate of a single country’s foreign trade is concerned, not only China, will face greater fluctuations. This is not as stable as global trade. Take the standard deviation of foreign trade growth rate and GDP growth rate to see the fluctuation range of the two. The larger the standard deviation, the larger the fluctuation range. The standard deviations of China’s foreign trade and GDP growth rates from 1978 to 2019 were 0.14 and 0.03, respectively. Obviously, the fluctuation range of the foreign trade growth rate was significantly greater than that of GDP. This actually increases the unpredictability of foreign trade growth. It also shows the normality of large fluctuations in foreign trade.
Finally, China’s economy is no longer a foreign trade-driven economy and no longer depends on external demand. During the international financial crisis in 2009, China’s exports and imports fell by 16.01% and 11.18%, respectively. The growth rates of exports and imports in 2015 were -2.94% and -14.27%, respectively, and the growth rates of exports and imports in 2016 were -7.73% and -5.46%, respectively. In 2009, 2015, and 2016, China’s GDP growth rate was 9.4%, 7.0%, and 6.8%, respectively. Compared with the previous year, the GDP growth rate in these three years decreased by 0.3 percentage points on average. This shows that although China’s foreign trade situation may affect China’s economy, its impact is quite limited. In fact, the correlation coefficient between China’s foreign trade growth rate and GDP growth rate from 1978 to 2019 is 0.43. Although the two are positively correlated, the correlation is not that strong. In fact, the key lies in the resilience of the Chinese economy itself. If China can stabilize domestic demand and maintain production, the Chinese economy will be affected by the COVID-19, but the decline can still be controlled.
Of course, China still needs to pay attention to the employment problems caused by the impact of foreign trade enterprises. Foreign trade companies will inevitably bring production and operation problems due to the impact of the COVID-19, and may even close down due to this. This will cause a certain amount of unemployment. Employment is related to the direct welfare of the people and social stability. Only by solving the employment problem can it be considered as withstanding the impact of the COVID-19. Therefore, stabilizing foreign trade is only a means, not an end. Stabilizing foreign trade is to better stabilize employment.