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Covid Impact On Global Trade

Jul 1, 2022Industry Insights

The Covid-19 outbreak that started in China quickly turned into a global health crisis, leading to economic shocks across the world. According to estimates from UNCTAD, the slowdown of manufacturing in China due to Covid-19 is disrupting global trade and could result in a $50 billion decrease in exports. The most affected economies at the time were the European Union ($15.6 billion), the United States ($5.8 billion), Japan ($5.2 billion), The Republic of Korea ($3.8 billion), Taiwan Province of China ($2.6 billion) and Vietnam ($2.3 billion). India was also amongst the Top 15 nations affected.

In an attempt to mitigate the situation, India implemented a nationwide lockdown in March 2020. This caused markets to struggle for finances and millions to become jobless, leading to an economic slump that has severely hampered international trade. Being that India is the sixth biggest economy in the world by GDP, the global trade ecosystem is still reeling from the impacts of these measures today. The full ramifications of Covid-19 on global trade may not be properly assessed until well into the future.

An overview of the COVID-19 impact on India’s exports

COVID-19 has had a significant impact on global trade, with India feeling the brunt of the pandemic’s effects. According to data from India’s Commerce Ministry, exports to the United States, India’s largest outbound destination for goods, plummeted 11.3% in 2020 compared to 2019. However, certain product groups showed resilience during the pandemic, with trade between the two countries remaining strong.

There are a number of factors that have contributed to the economic disruptions and current rise in demand for Indian goods in the United States. Firstly, Covid-19 has led to manufacturing slowdowns in China, resulting in less raw materials and components being available for Indian export products. Secondly, the US dollar has strengthened against most major currencies, making Indian goods more expensive for US importers. Finally, rising Covid-19 infection rates in the United States have led to increased demand for Indian pharmaceuticals and other medical supplies.

Despite the challenges posed by the pandemic, India’s export sector has shown resilience and remains an important part of the global trade landscape.

Lockdown restrictions

The Covid-19 pandemic has had a major impact on global trade, with countries imposing strict lockdown measures to contain the spread of the virus. This has led to delays in trade and impacted countries’ abilities to meet their import/export obligations.

One of the hardest hit countries has been India, which was among the first to imposed a complete lockdown. This led to orders from the United States piling up, which India was unable to fulfill. The situation more or less continued throughout the year, with eventually the United States relaxing its norms and India dealing with the aftermath of the lockdown.

According to the Federation of Indian Export Organizations (FIEO), things began improving by August 2020, with many orders coming from Europe and the United States. However, there are still many challenges that need to be overcome, such as labor shortages, factories running at only 60% of capacity, and quarantines for dock workers.

It remains to be seen how the Covid-19 pandemic will continue to impact global trade in the months and years to come.

Supply chain constraints

The Covid-19 pandemic has had a major impact on global trade, with one of the most significant challenges being the shortage of containers. This has severely impacted exports to the United States, which is the largest importer in the world.

The container shortage crisis is one of the main factors to examine when assessing the pandemic’s impact on global trade. The significant decrease in container availability in Asia affected the entire supply chain and severely impacted exports to the United States in particular. Due to the shortage, the shipping industry was faced with a reduced workforce, fewer shipping vessels operating, erratic movements in demand for various commodities and empty containers stranded at North American ports, all compounding the crisis further.

Unlike China, India was slow to recuperate from the losses and may have failed to jump on opportunities to export to the United States. However, data from The Trade Map of India reveals that the exports to the United States from India have grown more than 20% in the first quarter of 2021 (April-June) than it did in the same period in 2019.

The Trade Promotion Council of India said that going forward, exporters might opt for proximate markets instead of long-haul destinations like the United States due to skyrocketing freight costs and longer turnaround time for containers. Experts believe this change in strategy is due to skyrocketing freight costs and longer turnaround time for containers, which will hit exports to the United States.

With many countries looking for alternate geographies to China to set up their manufacturing hubs, India will scale up production to meet the demand in the United States and continue to make progress toward becoming a key player in the global trade ecosystem once more. There are some things working in the country’s favor. India could stand to benefit from the fallout in the ongoing U.S.-China trade war and tap into new opportunities. Additionally, the Indian government has proven that it is willing to take robust measures that modernize infrastructure and ensure the smooth flow of goods, with extra health and security measures for its laborers. These efforts will be critical for the nation’s growth in addition to boosting its trade relations with the United States.

Rising prices of raw materials

The Covid pandemic has had a major impact on global trade, with prices of raw materials rising sharply.

According to the World Bank’s Commodity Markets Outlook, the prices of raw materials are expected to be 10% higher this year on average, compared to 2020, before stabilizing in 2022. Experts attribute the price hike to the increased production cost for most manufacturers because of higher input costs.

This rise in raw material prices is having a knock-on effect on exports from countries like India. With the export oriented economies gearing up for the biggest shipping season of the year, the U.S. holiday season, the ongoing inflation is bound to shake things for sure, perhaps even leaving slim chances or crushing altogether the export opportunities for small-sized Indian businesses.

Conclusion

The Covid-19 pandemic has had a profound effect on global trade, with many businesses forced to shutter their doors and rethink their operations. Shipping, in particular, has been hit hard by the pandemic, with container traffic falling sharply as a result of Covid-19 restrictions.

Despite these challenges, data from the Directorate General of Foreign Trade reveals that the United States comprised a 23.34% share of India’s total exports worth $5,421.82 million during April 2021-22. To be sure, trade has shown some signs of improvement. But, the road to full recovery will likely be a long one.

Even though the bilateral trade situation between these two countries may be reaching the pre-pandemic levels, constant changes in the supply chain and other circumstances can drastically modify the scenario. The United States is the world’s largest trading nation, so India must ensure it does whatever it can to build a strategic relationship with the superpower to carve its name in the global trade space.

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