The COVID-19 pandemic has created an economic imbalance in the world, as the health crisis unfolds the international trade is witnessing a sharp decline. World trade is expected to fall by between 13% and 32% in 2020 as the COVID 19 pandemic disrupts normal economic activity and life around the world (WTO, 2020).
Countries like the USA, Australia, Canada and Europe have been hit with disturbance in supply chains as the flow of trade from China has been disrupted from China forcing them to look for alternate trade partners. The coronavirus has revealed the vulnerabilities of our current economic model, the lack of preparedness of our economic structure to deal with crises and shocks. The current crisis has shed light on the need for modernisation of our trade practices, to adapt to a more sustainable economic model. Risk assessment has now become more important than ever, for companies to design a rational plan to deal with unexpected future economic disturbances.
Increasing role of Digital trade
Technology is going to be a key player in terms of international trade post-COVID-19 era, as it will enable countries to form a more dependable and smarter supply chain system. Economic Forum has emphasized that digital trade is crucial for economic recovery. As the physical movement of goods and people is restricted, digital trade has played a crucial role in keeping trade flowing – virtually (Ziyang Fan, 2020).
As the crisis unfolds, the dependence on digital trade is increasing. Nationwide lockdowns and social distancing norms have changed the consumers’ demand approach, the current demand patterns have shifted to a more minimalist app with e-commerce demand witnessing a surge. Consumers around the world are relying on digital platforms to procure essential items as well as on OTT media platforms for source of entertainment.
Digital payments are preferred mode of payment for domestic trade as well as cross border e-commerce transactions. With technologies like artificial intelligence and the Internet of Things, supply chains could quickly switch to alternative providers when regular suppliers face disruption (Jesse Lin, 2020). The trend is envisaged to continue even after the pandemic ends given the fact that is much more efficient and reliable and economically profitable.
Cross-border digital connectivity is proving to be a major platform for supporting multinational corporations to function. All businesses are running through digital communication, people can connect while sitting in different parts of the world from the comfort of their homes. It has served as a smart solution for businesses while following the social distancing measures accurately. Along with maintaining connectivity, it has also proved to be an economically smart option by reducing the running costs such as office premises maintenance costs for businesses currently failing to make high profits, it has helped sustain global businesses in this uncertain time.
International trade is struggling partially because of irrational and not long-lasting supply chains wherein the countries rely on a single source to obtain materials. It is important to form diverse sourcing with multiple suppliers in order to form supply chains that are more robust and sustainable.
The economic stimulus packages announced by various nations around the world have special provisions for SMEs and MSMEs such as tax reduction measures and the advancement of loans at a low rate of interest to help with their economic growth. In the absence of trade with previous trade partners domestic industries are the major suppliers and in order to correct the supply imbalance, they are the most reliable option for nations in the current times. Specifically in the case of medical equipment that is one of the major necessities owing to the health crisis, countries have now increased their domestic productions of masks, PPE kits and ventilators since their prices in the international market are witnessing a high surge owing to the emergency need.
With the threatening concern of a second wave of the COVID-19, with the pandemic returning with a greater strength resulting in more infections, governments around the world would again be forced to enforce strict lockdowns thereby gravely affecting the international economy. COVID-19 has once again brought into attention to the negative effects of globalisation. International trade-one of globalisation’s biggest product, the gap and issues in it has been highlighted too. But again no one could have predicted the pandemic such as this and its implications beforehand. Although it has given us a chance to bring about changes in our trade and economic models, international trade post-COVID-19 is going to be quite different. Businesses around the world are going to focus on business risk management much more than before and so would the governments in order to sustain their economies from any future shocks. The out-dated and less informed trade models would shift to a more informed one wherein countries would rely more on technology and at the same time would work towards strengthening their domestic industries so as to curtail their reliance on international trade.