Trade update: Light at the end of the tunnel

Two years into the pandemic is a good time to examine its effect on trade flows.

Data suggest that globalization and world trade have bounced back from the impact of Covid-19. This may change when the full effect of Omicron is measured, but, in the meantime, world trade of goods appears to have surged back to pre-pandemic levels, despite supply chain issues.

This is according to recently published research, the “2021 DHL Global Connectedness Index”, co-authored by scholars from New York University’s Stern School of Business. According to this study, which analyzes globalization by measuring international flows of trade, capital, information and people, Covid-19 has not undermined global trade as much as some had predicted. The report says Covid-19 had a smaller impact on globalization than the 2008-2009 global financial crisis.

Travel, tourism, hospitality and entertainment have been hit hard, but international trade has boomed. Trade and capital flows are back at, or in some cases exceed, pre-pandemic levels. For example, while the “trade war” between the U.S. and China caused a small reduction in trade in 2019, the two countries are trading more during the pandemic than before.

In spite of supply chain issues, exorbitant air and ocean transport prices, delays, congestion, shortages of shipping containers, weather-related disruptions and ongoing international tensions, trade in goods has surged above pre-pandemic levels. However, it may be unevenly distributed, as many countries face high inflation and developing countries are struggling to recover, in part due to limited access to vaccines.

The report refutes the prediction that the pandemic would lead companies to shorten their supply chain, and source more products locally or within their region. Indeed, it appears that international flow of goods has grown faster than flows within regions. Some reshoring has begun, but it takes time to have a tangible impact on trade flows.

Canadian results

Canada’s international trade was brisk in November in spite of disruptions caused by flooding and landslides in British Colombia. The latest figures available show that exports were up 3.8 percent, after a record high in October, and imports rose 2.4 percent.

Consumer goods led, with higher exports of pharmaceutical products, while most other sectors – chemical, plastic, rubber, energy and forestry products – were up as well. Imports of consumer goods rose for the fourth consecutive month, followed by metal and non-metallic mineral products and chemicals.

After a 7.5 percent increase in October, exports to the United States were up 6.4 percent and imports up 4.9 percent. Our trade with other countries was down. Exports dropped by four percent and imports declined by 1.8 percent, likely due to the transport disruptions in B.C.

South of the border, the U.S. import surge continues, driven by strong consumer demand. It pushed the trade deficit to a record US$99 billion in November.

Goods imports jumped 5.1 percent, with industrial supplies and materials making up half the increase, and consumer products accounting for a quarter of the gain. Inbound goods have swamped U.S. ports, while exports were down two percent, adding to an imbalance encouraged by ocean carriers rushing to return empty containers to Asia to pick-up higher-paying imports.

What’s in store for 2022?

Export Development Canada’s Trade Confidence Index (TCI) released at the end of December carried good news: it discovered that in spite of the challenges around global trade, Canadian exporters feel optimistic. On domestic and international fronts, sales prospects are reported to be booming.

However, labour issues – in particular the difficulty of hiring skilled labour – were cited as a key barrier to growth. Travel restrictions are another critical issue, as developing new business requires visits to customers, participation in trade shows, networking events and similar activities. Supply chain constraints and disruptions remain an important barrier to growth that applies to all Canadian businesses, exporters, manufacturers, importers, distributors and retailers.

At the beginning of a new year, what are the main threats to trade and economic growth? Of course, Omicron and other Covid-19 variants are at the top of the list. Supply chain bottlenecks, delays, high freight rates, which some predicted would ease by now, are still here and may continue well into 2022.

The shortage of semiconductors is still affecting the auto sector. Soaring inflation, caused by supply shortages, and rising energy, commodity and raw material prices, could derail the recovery. But for now trade has been flowing and growing, as the world adapts to this new reality.