By Eun-Young Jeong and Tom Fairless
Global trade is rebounding much more quickly this year than it
did after the 2008 financial crisis, lifting parts of the world
economy and defying predictions the pandemic could send
globalization into permanent retreat.
When the new coronavirus hit earlier this year, international
trade in goods suffered the biggest year-over-year drop since the
Great Depression. Economists warned of rising protectionism, and
some companies said they would reassess overseas supply chains that
were vulnerable to unexpected shocks.
Trade remains below pre-pandemic levels. Still, it has snapped
back robustly -- and had recovered about half of this year's
historic loss by June, according to calculations by the Kiel
Institute for the World Economy, a German think tank.
New export orders were growing in 14 of 38 economies measured by
research firm IHS Markit in August, compared with just four in
June. Others were trending in the right direction and could start
seeing growth soon.
Households are spending on imported goods, sometimes supported
by government cash, even as spending on local services like
restaurant meals and trips to the cinema has fallen -- and all
those goods have to come from somewhere.
China, whose factories were among the first to reopen from
pandemic shutdowns, recorded 9.5% growth in outbound shipping in
August compared with the previous year. Its Ningbo-Zhoushan port,
among the world's largest, has seen trade volume surpass 2019
levels with increasing frequency since July, according to QuantCube
Technology, a Paris-based data company.
South Korean exports in the first 10 days of this month were
just 0.2% below the same period last year.
Shipping activity in some other U.S., Asian and European ports
also has normalized, according to global freight volume data.
Freight rates have risen far above pre-Covid-19 levels on some key
routes as demand for goods returns, hitting a record high this
month for standard container spot prices from Shanghai to
California.
The recovery isn't being felt evenly everywhere, and trade still
faces fierce headwinds, including a possible coronavirus resurgence
this fall.
Still, countries where trade has improved, including China,
South Korea and Germany, are seeing their economies bounce back
better than countries that rely more heavily on services, though
additional factors, such as their relative success in containing
Covid-19, are also at play.
China is on track to be the only major economy to grow this
year. In South Korea and Germany, Barclays expects the economies to
contract by 1.5% and 5.3% this year, respectively, much less than
countries tuned more toward services like Italy and Spain, which
are forecast to contract by 9.3% and 10.7%.
That suggests trade could play a bigger role in the world's
economic recovery than anticipated, if the trend continues.
"Trade is one sector of the economy that has proven to be more
resilient, " said Shaun Roache, chief economist for the
Asia-Pacific region at S&P Global. "Even if you can't go on
that vacation, you can buy yourself a new laptop," he said.
Formlabs Inc., a company based in Somerville, Mass., that makes
3-D printers, says it has seen a strong rebound in sales in recent
weeks, especially for less expensive products. The company
manufactures its products mainly in China and ships them around the
world.
"We're mostly back to precrisis levels," said Christophe Mandy,
the company's head of manufacturing. He said he is seeing new
orders from small businesses such as dental clinics, which have
used pauses in activity to reconsider their strategies and digitize
their processes.
Other exporters say they are hiring again and even contemplating
new investments.
Ecopro BM Co., a producer of battery materials in Cheongju,
South Korea, is on track to expand production capacity this year
and has added more workers as demand keeps rising, said Kim
Kwang-myoung, an investor-relations manager. He said sales of the
company's materials -- some of which go into batteries that power
Tesla Inc.'s cars -- have benefited from growing demand for
electric vehicles, especially in Europe.
Another South Korean manufacturer, Synus Tech Co., which makes
automated production equipment, said it has hired 36 more workers
this year -- similar to 2019 -- as more businesses look to automate
work. The pandemic has hardly dented profits, said Yoo Jae-Hyeong,
an assistant manager in the planning and management department.
In its recent analysis of global trade, the Kiel Institute
examined data from the 2008-09 recession and found it took 13
months for trade volumes to recover to the level they reached after
only two months this year, said Gabriel Felbermayr, the institute's
president.
One reason is that this year's trade crunch was largely caused
by physical barriers to trade rather than a long-term collapse in
demand, he said. That meant exports and imports could recover
quickly when governments reopened borders and eased restrictions on
social activity.
And while the 2008-09 global downturn was the result of a
banking crisis that dried up financing, governments have moved
quickly this year to backstop banks and guarantee trade finance, he
said.
The challenges ahead are sizable. Business sentiment has slid
recently in some countries, as Covid-19 infection rates rise again
and tighter restrictions return. Vietnam's trade recovery slowed
after a fresh wave of Covid-19 infections in late July.
The recovery could also level off soon in Europe and elsewhere
as stimulus programs are phased out.
Eva Chan, sales manager at Guangdong Jiusheng Electronics
Technology Co., a television assembler in China, said her company
is now exporting three to four containers a month, compared with
four to six in pre-pandemic times.
"You can tell the economic situation in foreign countries is not
very good," she said. "Many of our customers are pressing us to
hand over the goods as soon as possible after placing orders"
because they are worried about another downturn and want to sell
everything before buyers change their minds.
"Still, we made it through the epidemic," said Ms. Chan, who
said she is hopeful the recovery will continue as long as other
countries curb the disease.
Another risk is that major importers like the U.S. could react
negatively to the trade recovery and adopt more-protectionist
measures as they see countries such as China rebounding.
China's share of global-merchandise trade jumped from 13.6% in
the last quarter of 2019 to 17.2% in the second quarter of this
year following the pandemic, according to Oxford Economics. The
U.S. recently recorded its widest trade deficit since 2008, as the
pandemic put a brake on service exports while goods imports
recovered.
Many companies, meanwhile, are still rethinking their supply
chains, which could alter trade patterns in the longer run.
WILO SE, a pump manufacturer with around 8,000 staff based in
northwest Germany, says it will set up a second headquarters in
China this year, followed by a third headquarters in the U.S., so
it can have regional hubs that act largely autonomously. The idea
is to insulate WILO against future trade disruptions and
protectionism.
"The corona pandemic painfully illustrates the weaknesses of the
current world economic order with all its interlinked value
chains," said Oliver Hermes, WILO's chief executive. He says WILO
plans to produce more products in-house as part of what he calls
"Globalization 2.0."
Even if trade shapes up differently ahead, its resilience in
recent months suggests some of the direst predictions about
globalization's demise might have been premature. In the wake of
the long-running trade war between the U.S. and China, global trade
as a percentage of world gross domestic product slipped to its
lowest level in three decades last year, according to Moody's
Analytics.
In places such as Germany, many businesses have little choice
but to double down on exports, which are worth around 47% of the
nation's economic output, four times the share in the U.S. Data
from the German Mechanical Engineering Industry Association, or
VDMA, a trade group, shows some German manufacturing companies are
scaling up investments overseas.
The European market is too small for many German exporters to
survive just by selling locally, said Ulrich Ackermann, the VDMA's
managing director for foreign trade. "That means we need the
international markets," he said.
--Bingyan Wang contributed to this article.
Write to Eun-Young Jeong at Eun-Young.Jeong@wsj.com and Tom
Fairless at tom.fairless@wsj.com
(END) Dow Jones Newswires
September 20, 2020 05:44 ET (09:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.