Impacts of Coronavirus on International Trade and the Environment

Impacts of Coronavirus on International Trade and the Environment

Impacts of Coronavirus on International Trade and the Environment

As the world continues to grapple with the effects of the coronavirus, many analysts have turned their attention to its impact on international trade and the environment. 

The significant measures required to combat coronavirus have already caused a major economic impact. It is so devastating that the OECD believes the global pandemic is the greatest threat to the global economy since the 2008 Global Financial Crisis.

Businesses are facing disrupted supply chains, declining revenue, workforce shortages, and inconvenient quarantines. This in turn has made it very difficult to conduct hitch-free international trade.

In addition, the coronavirus has positively affected the environment, as manufacturing, business, transportation, and consumer activities have dwindled. As such, the levels of pollution have decreased.

To help you understand the effects of the coronavirus, here is a closer look at how it has changed both international trade and the environment.

What Exactly is Coronavirus?

A coronavirus is a group of viruses that cause respiratory infections. The severity of the different types of coronavirus can vary greatly, with the least severe having symptoms similar to seasonal influenza. 

The current form of the coronavirus sweeping the globe is COVID-19. It is a highly dangerous virus that is much more infectious than seasonal influenza. It also has a higher risk of mortality due to the severity of the respiratory infections it causes.

COVID-19 first appeared in the Chinese city of Wuhan in late 2019. The first case was suspected to have been caused by a virus transmitted from an animal to a human, although the actual cause is unknown.  

By January 2020, there were a few hundred cases in Wuhan and a very small number of cases in other countries, including Thailand and the United States. However, the extremely contagious nature of the virus caused it to spread rapidly.

As of March 18, 2020, there were about 191,127 cases of COVID-19 and 7,807 deaths globally. The virus had spread far beyond China and is now present in virtually every country.

The Impact on International Trade

In the early days of the virus, Chinese President Xi Jinping predicted that it would have a significant impact on international trade. In February, he was quoted as saying, "It is unavoidable that the novel coronavirus epidemic will have a considerable impact on the economy and society." Some of the ways the virus has impacted trade include:

The decline in Chinese manufacturing output 

COVID-19 has caused significant disruption in the Chinese manufacturing sector since January. This occurred because Chinese authorities were forced to lock down several cities, restricting the movement of labor, products, parts, and ingredients. 

This made it very difficult for factories to continue operating as normal. As a result, Chinese manufacturing output declined by 13.5% in January-February, when compared to 2019. This was the weakest start to the year since January 1990. Exports contracted by 17.2% in dollar terms between January and February.

This decline in activity has triggered a significant reduction in international trade, given that China is the world’s largest manufacturer. Less Chinese consumer items have made their way into Europe and the United States. This has led to retail businesses in those countries struggling to obtain some of the products they need. As a result, some retailers have posted losses

However, there is some evidence to suggest that this decline may be temporary. The number of new COVID-19 infections in China has steadily been decreasing, which has allowed many factories to reopen in March.

Disrupted Supply Chains Affecting Companies Outside China

The large China-centric global supply chains upon which Western companies rely have also been greatly affected by the downturn in Chinese manufacturing. Many European and American companies have been impacted by an inability to get the parts they need to continue production.

The difficulty that companies have had obtaining parts can be easily seen in shipping data. In the United States, parcel volume fell by 2.4% among manufacturing customers in February compared to a year earlier.

Some companies have even had to shut down factories because they could not access Chinese parts. Car manufacturer Nissan ceased operations at one of its Japanese plants simply because it could not source the parts it needed from Japan. The pharmaceutical industry has also taken a hit, with countries dependent on Chinese products finding it difficult to maintain supply

Declining oil prices

As the level of international trade has declined, the demand for oil has faltered. There was a significant reduction in oil prices even before the March 6 disagreement on production cuts between OPEC and ally countries before the March 6 disagreement on production cuts between OPEC and ally countries. As trade and consumer spending continue to slow, there will be even fewer international oil shipments.

Extreme Stock Market Volatility Impacting Business Confidence

Global stock markets have not reacted well to the economic disruption caused by COVID-19. In the United States, the Dow Jones Index is down over 25% since the start of the year. Declining share prices have prompted many companies to reduce expenditures, which has also negatively impacted international trade. 

Travel Bans

Many governments around the world have begun to completely block the arrival of non-residents to halt the spread of COVID-19. While most countries are still allowing international trade to flow as normal, blocking foreign visitors may have an effect on business confidence.

These kinds of travel bans are expected to cost airlines hundreds of billions of dollars in lost revenue. Most airlines have begun grounding their fleets, and many may struggle to survive if there are extended travel bans. This may change international trade by reducing the number of airline freight carriers in operation.

The Impact on the Environment

Improved Air Quality

A slowdown in manufacturing and transportation has reduced pollution levels significantly. NASA first noticed this effect in China’s Hubei Province in late 2019 when they saw less smog in the area. The reduction in pollution has been so dramatic that scientists believe it could prevent 50,000 to 75,000 premature deaths. Countries including the UK, France, the United States, and Italy are already seeing less air pollution simply because there are fewer vehicles on the road.

Reduced Greenhouse Gas Emissions

The grounding of planes, shuttering of factories, closure of retail outlets, and other changes associated with COVD-19 are also expected to reduce greenhouse gas emissions. A similar effect occurred in 2008-2009, when the global financial crisis slowed consumption and manufacturing. 

There is also expected to be a reduction in electricity consumption, which will result in declining emissions from coal and gas-burning electricity plants. In China, the amount of coal used has dropped by 36% compared to the same time last year, which represents a massive reduction in emissions.

More Waste

Unfortunately, it is not all good news for the environment. To avoid risk of transmitting coronavirus, consumers are being told to avoid multiple use items like reusable coffee cups. Pre-packaged meals are also seen as a safer option compared to eating at a restaurant, because there is no direct human contact with the food. This will lead to an increase in the amount of landfill being generated form packaging.