Economic Development

Trade challenges and opportunities in the post-pandemic world

February 22, 2022

Global

Trade challenges and opportunities in the post-pandemic world

February 22, 2022

Global
Matus Samel

Manager, Policy and insights , Economist Impact

Matus is a manager on the Policy & Insights team at Economist Impact, based in London. He oversees the execution of projects focused on economic development, sustainable growth, and international trade. Matus has delivered programmes for a number of international clients, including the UN International Fund for Agricultural Development (IFAD), USAID, UK Foreign, Commonwealth and Development Office (FCDO), European Bank for Reconstruction and Development (EBRD), Swiss Agency for Development and Co-operation (SDC), UNICEF, Global Water Partnership (GWP), and many others. Prior to joining the EIU, Matus worked on energy policy, sustainable development, and international trade projects at UNESCAP, Chatham House and Harvard Kennedy School Belfer Center. He holds a Master's degree in Public Policy from Harvard Kennedy School of Government, where he specialised in economic development, energy policy and international trade and competitiveness.

Even prior to the covid-19 pandemic, cross-border flows of goods, services, investment and people had been slowing down for years.

Trade restrictions, such as temporary export bans and other non-tariff barriers, have mushroomed while many multinational negotiations on trade are at an impasse.1 The pandemic imposed an unprecedented shock on global trade and investment as lockdowns and border closures fettered the free movement of people and goods. Capital flows plunged by 35% to US$1trn in 2020, while trade in services declined by 20%.2,3 On the other hand, global trade in goods proved remarkably resilient. Goods trade fell by more than 5% in 2020, bouncing back after a bottom-out in the second quarter, and rebounding by more than 10% in 2021.4,5 Some industries are emerging from the pandemic stronger than others. Digital technology and low-carbon goods and services are among the industries set to benefit the most as businesses and investors increasingly target long-term resilience.

 

Global trade: Back in black: World Merchandise Export Volume, Index (2015=100)

 

Covid-19 accelerated the uptake of technology in business and society by many years, as digitalisation became a necessity rather than a choice. Notably, the digitalisation of global value chains (GVCs) for goods and services is one of the most visible trends. Supporting infrastructure and services for digital GVCs will see rapid expansion in the years to come. Unlike in the Great Recession (2007–09), ICT spending remained strong during the pandemic, and is set to increase further to reach US$5.8trn in 2023, while AI-based software and services will grow from US$62bn in 2020 to US$998bn in 2028.6,7 Global revenue for cyber-security services are projected to rise from US$67bn in 2019 to US$111bn in 2025.8 Mass digitalisation is, in turn, supporting vibrant disruptor industries such as fintech (financial services), healthtech (health and medical goods and services) and edtech (education services) among others. Countries around the world urgently aim to develop their digital sectors, and beyond the largest economies (China and the US), countries such as the UK, India and Canada are now home to a growing base of start-ups operating in these high-growth sectors. 

 
Resilient IT: Total IT spending on packaged software, hardware and IT services (% change year-on-year).

 

The pandemic has also put the sustainability imperative at the centre of investment and policy strategies. “Clean growth” and a drive for sustainable and resilient sourcing have become the new stated economic paradigm, impacting all sectors of the economy.9 In part this has been driven by supply-side shocks, as shortages across certain product ranges have reinforced the need for companies and governments to build greater resilience against unpredicted external events.10 On the other hand, consumers have driven demand-side shifts, as environmental and social consequences of specific patterns of consumption are increasingly factored in. This is causing companies to find new ways of bolstering resilience in their supply chains without compromising competitiveness.11 Concurrently, the pandemic is also shifting the global investment landscape towards green finance. Estimates for green investment products reached US$3.2trn in 2020, an 80% increase year on year.12 However, many more resources still need to be mobilised to finance the transition towards a climate-resilient economy. Some estimates suggest that US$100-150trn will be needed to keep the world within the Paris Climate Agreement targets.13 

 
Sustainability matters: % who agree with the statement “I will buy more sustainable products” after the pandemic has ended

The pandemic also accelerated the return of big and national industrial policies. Governments spent billions to support business and workers.14 These measures have to a large extent staved off the expected economic damage. Some governments are also intervening in their economies through proactive industrial policy, particularly in priority industries such as digital technology, energy and health care. According to UNCTAD, 101 countries, representing 90% of global GDP, have adopted formal industrial development strategies in the past decade, mainly focused on technological innovation.15 Some governments have also become more protectionist. In light of the supply chain vulnerability and the risk of predatory takeovers of strategic industries during the pandemic, the share of restrictive or regulatory measures over measures aimed at liberalising investment increased by 41% in 2020, the highest on record.16

 
Policies matter: Number of investment policy measures adopted globally between 2008-2020

 

1 UN Conference on Trade and Development (UNCTAD), 2021: https://unctad.org/topic/trade-analysis/non-tariff-measures/covid-19-and-ntms
2 UN Conference on Trade and Development, 2021: https://unctad.org/system/files/official-document/wir2021_en.pdf
3 World Trade Organisation, 2021: https://www.wto.org/english/news_e/pres21_e/pr876_e.htm
4 World Trade Organisation, 2021: https://www.wto.org/english/news_e/pres21_e/pr876_e.htm
5 World Trade Organisation, 2021: https://www.wto.org/english/news_e/pres21_e/pr889_e.htm
6 International Data Corporation: https://www.idc.com/promo/global-ict-spending/forecast
7 Grand View Research, 2021: https://www.grandviewresearch.com/industry-analysis/artificial-intelligence-ai-market
8 The Business Research Company, 2020: https://www.globenewswire.com/news-release/2020/11/05/2121251/0/en/Cybersecurity-Industry-
Overview-Shows-US-To-Account-For-The-Largest-Share-Among-Countries-In-The-Global-Cyber-Securities-Market-2020.html
9 Economist Intelligence Unit, 2021: https://impact.economist.com/perspectives/sites/default/files/eiu_dit_clean_growth.pdf
10 McKinsey, 2020: https://www.mckinsey.com/business-functions/operations/our-insights/resetting-supply-chains-for-the-next-normal
11 Economist Intelligence Unit, 2021: https://eiuperspectives.economist.com/strategy-leadership/re-threading-supply-chains-lifestyle-industry; YouGov, 2021: https://db42aa43a2d5ed566294-81964d36a501d7a15be4d8350b0feec4.ssl.cf3.rackcdn.com/YouGov-International-FMCG-Report-2021%20(2).pd
12 UN Conference on Trade and Development, 2021: https://unctad.org/system/files/official-document/wir2021_en.pdf
13 Global Financial Markets Association, 2020: https://www.gfma.org/policies-resources/gfma-and-bcg-report-on-climate-finance-markets-and-the-real-economy/
14 Statista, 2021: https://www.statista.com/statistics/1107572/covid-19-value-g20-stimulus-packages-share-gdp/
15 UN Conference on Trade and Development, World Investment Forum 2018: https://unctad.org/system/files/official-document/wir2018_en.pdf
16 UN Conference on Trade and Development, 2021: https://unctad.org/system/files/official-document/wir2021_en.pdf

Receive forward-looking perspectives from our editors - Subscribe now for our Weekly Digest