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International Trade: What to expect in 2021?

The dependence and interconnection of the international system facilitated the spread of the Coronavirus and accelerated the global economic decline.

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Latin America and the Caribbean is one of the regions with the greatest impact on trade since the start of the pandemic. Photo: Pexels

LatinAmerican Post | Bryan Andres Murcia Molina

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Leer en español: Comercio Internacional:¿Que esperar en 2021?

The world today is interconnected, both informally, economically, or by means of transport. This interdependence generated by the adoption of international economic policies has caused a domino effect in the world on several occasions. The connection that has been built over the last 50 years has made countries more susceptible to suffering consequences from external problems in other nations. Such was the case of the world financial crisis of 2008 and 2009, where it was evident how globalization hangs by a thin thread, in which many actors balance at the same time, and if one fails, the others run the risk of falling. Such as dominoes.

The pandemic caused by the coronavirus is an example of the above. The disease that emerged in China at the beginning of 2020 has become the greatest enemy of the current international system since it has been causing a number of negative consequences, caused by the measures, restrictions, and limitations that governments around the world, have adopted with the aim of curbing the virus.

According to the World Trade Organization [WTO] (2020), world trade fell between 13% and 32%; at the same time, the volume of trade presented a slowdown, which, in the best of cases, will have its recovery in 2021.

This was supported at the time by the Economic Commission for Latin America and the Caribbean [ECLAC], which reported that the world suffered the worst economic contraction since the Second World War, due to the fact that in the first 5 months of the pandemic, exports from the United States, Japan, and the European Union were the most affected. At the end of last year, ECLAC estimated an average contraction of the region of -7.7% and a slight rebound of 3.7% for 2021. In the same way, the figures for trade in services indicated a serious impact, as the exports of a group of 37 nations contracted by 10.4%, which represents two-thirds of world trade in services.

Unfortunately, Latin America and the Caribbean are some of the regions with the greatest impact on trade. According to the UN, exports in the regions fell to such a low point that to locate an involution in the performance of these magnitudes, we must travel in time 80 years. In the same way, the fall in imports exceeds the negative indicators of the 2008 crisis and is the worst in 40 years.

All of the above has an explanation that stems from the economic characteristics of the countries of Latin America and the Caribbean. Internationally, the region has been characterized by adopting an extractive and agro-industrial model; which has allowed agricultural products and raw materials to be the main export of this region. Consequently, the damage caused by the restrictive measures to global supply chains (supply and demand) altered price values, reducing the purchase of products and putting the production of many agro-industries in suspense, according to the Latin American Association of Integration (ALADI).

The factor that most worries analysts, economists, internationalists, and political scientists is that, so far, Latin America and the Caribbean is the developing region most affected by the pandemic, given that foreign trade, imports, and exports only expose one edge of the problem, which is multilevel and multidisciplinary; since institutional fragility, corruption and social characteristics increase socio-economic problems, which makes it difficult to open up and recover the region's economy.

Signs of recovery

According to various economic sources, the reactivation of world trade depends on the continuation and flexibility of the fiscal, tariff and economic policies that the world adopts, since the reactivation depends on the coordination between countries and the implementation of new integration measures, of world trade and new investment dynamics.

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In the same way, and according to the World Bank, vaccination plans are going to play a very important role in the expansion of the world economy. Although a moderate recovery is expected in principle, there is hope in the short-term policies on health management, debt, investment and taxes, since, based on them, the bases for a positive recovery will be fostered. However, one of the great controversies is the inequality in the distribution of vaccines worldwide,  because rich countries monopolize a large part of vaccine production; and poor or developing countries are having problems acquiring the number of doses necessary to generate immunity in the population.

The governments of Latin America and the Caribbean have a separate challenge since the commercial recovery must adhere to social policies that reduce the inequality gaps that increased in the pandemic. Investments and commercial dynamism will be key, but they largely depend on the acquisitive recovery of its inhabitants and the new entrepreneurial impulse of small and medium-sized entrepreneurs, who need fiscal flexibility and financial leverage to reactivate their businesses.

However, so far, Korea and China appear to be the most commercially stable countries this year. In an environment of uncertainty, China seems to position itself in international trade, playing the role of commercial reactivator. Chinese exports have increased at a significant rate, to the point that, according to the BBC, its influence in Asia has increased, as has its exports to the United States despite the tariff cost.

Without a doubt, the recovery of world trade can redraw the map of the international system, changing the world order we know and positioning new business leaders.