Things That Used to Be in High Demand That Are Regaining Demand Again

Abstract

International merchandise plunged in 2020 but recovered sharply in 2021. While total trade flows are at present comfortably above pre-pandemic levels, merchandise impacts across specific appurtenances, services and trade partners are highly various, creating pressures on specific sectors and supply chains. The changes in the trade structure caused by the COVID-xix pandemic in a single year was of a similar magnitude to changes otherwise typically seen over 4-5 years. Substantial imbalances beyond trade partners and products remained at the terminate of 2021, and not all of the accumulated losses from the earlier steep declines were recuperated. The heterogeneity of trade impacts and changes in trade flows beyond products, sources and destinations signifies high uncertainty and adjustment costs, and implies additional incentives for consumers, firms and governments to adopt new — or to intensify existing — adventure mitigation strategies.

What happened to international trade in 2020 and 2021?

The yr 2020 was marked by some of the largest reductions in trade and output volumes since Earth War Two. The declines in both earth industrial product and goods trade in the first half of 2020 were of like depth to those at the trough of the Global Financial Crisis (GFC). Nevertheless, they materialised and disappeared more than quickly, facilitating a V-shaped recovery in 2020. Trade continued to grow strongly in 2021 and has compensated some, merely not all, of the accumulated losses from the steep declines seen earlier. 1

Initial pandemic-era expectations for a double-digit decline in world merchandise trade in 2020 did non materialise. The book of global merchandise has recovered to the pre-pandemic level at an extraordinarily fast step from around mid-2020 (Figure i).

Withal, the relatively positive performance of aggregate merchandise hides considerable differences across products, economic sectors and trading relationships. The trade collapse of early on 2020 did non hit all products to the same extent and the rising tide did not lift all parts of the global trade organization equally either. Trade impacts across specific goods, services and trade partners show a highly diverse moving picture and created pressures on specific sectors and supply bondage that were much more pronounced than during the GFC.

In 2020, trade in services declined more and has been recovering at a slower pace than goods merchandise. Non surprisingly, trade in travel and tourism services slumped dramatically but trade in digitally delivered services, such as telecommunication and information technology services, boomed. Overall, the value of exports of services in OECD countries declined in 2020 by -16.vii%, twice as much equally the value of goods exports, which dropped by -8.two%. This was as well i factor underpinning the comparatively large adjustments in output relative to those in merchandise, every bit services account for a larger share of the economy than their weight in international merchandise (Figure 2).

Trade in several types of appurtenances and services plummeted, while trade in others increased markedly. The product structure of merchandise trade inverse significantly: trade in several products nosedived (due east.chiliad. fuels, aircrafts, cars, mechanical machinery, steel), while trade in some other products increased (eastward.g. protective equipment and pharmaceutical products, nutrient, and 'dwelling nesting' products such as domestic appliances and electronics) (Figure 3).

Our assay of the data shows that the variation in trade impacts across the different product categories in 2020 was not only larger than during the GFC, only also larger than in any other yr in the by ii decades. The changes in the trade structure caused by the COVID-19 pandemic in a single yr was of a similar magnitude to changes otherwise typically seen over 4-v years.

Some international supply bondage came under pressure in the early on months of the pandemic due to extraordinary demand (east.g. for personal protective equipment), simply the data as well show that some major supply chains remained resilient and were instrumental in the recovery of the economy in late 2020. Trade of parts and components used for the manufacture of passenger motor cars, for example, decreased less chop-chop and recovered more apace than merchandise of finished passenger motor cars (Effigy 4), suggesting that in 2020 demand for motor cars plummeted while product and supply chain planners kept replenishing the components hoping the demand would return soon.

Another case is the semiconductor industry, where shortages of supply have been reported to contribute to disruptions in downstream industries during the COVID‑19 pandemic. This may have been the case for some downstream users but trade information indicate that trade in semiconductors ii , 3 has been expanding overall at a fast pace. In 2020, the value of exports of the ten largest exporters grew by 11.5% over 2019, and in the period January-Apr 2021 they grew by an impressive 26.3% over the aforementioned menses in 2020. While some top suppliers saw negative growth rates early on in 2020, these turned positive over the year (Effigy v).

Overall, the cumulative value of semiconductor exports of the ten largest exporters during the pandemic betwixt January 2020 and Apr 2021 was 17.three% college than that which would commonly be expected based on 2019 trends. 4 , v

Asia was at the center of supply concatenation developments in 2020, with China seeing a significant expansion of demand for its exports (Figure 6). The altitude travelled by imported products also continued to increase in 2020, largely as an outcome of China and other Asian countries filling supply gaps resulting from lockdowns and changes in demand. These shifts occurred in the context of significant perturbations in the international transport sector.

Trade growth in 2021: New impetus or clearing the backlogs from 2020?

In 2021, both the volume and (year-on-yr) growth rates of world trade reached historical highs in May and June. This is partially a reflection of severely disrupted merchandise in the first half of 2020 (leading to a low base), combined with the issue of releasing pent-upward demand from 2020, every bit well as shifts of demand from services to goods, and an unwinding of the backlogs in international supply chains. Need has resumed particularly for non-perishable appurtenances, where product and commitment can be delayed in fourth dimension such every bit semiconductors, plastics, furniture and bicycles.

In many countries, later a flow of temporary de-confinement at the end of 2020, the first of 2021 was once again marked by a wave of lockdowns and restrictions, which weighed on need, supply and international trade. The recovery during the offset half of 2021 connected to be uneven across countries and its pace continued to evolve over time. The growth in China'due south trade, exports in particular, was notably faster than that of other big economies in the second half of 2020 and early 2021.

One manner to assess the impact of the pandemic and subsequent recovery is to compare traded volumes with the levels that would typically be expected during a similar period in 'normal' times, bookkeeping for both the merchandise collapse in the early stages of the pandemic and the recovery since belatedly 2020. The left console of Figure 7 shows how world trade has evolved relative to historical trend. 6 Until June 2020, there was a shortfall of merchandise flows relative to what could be expected based on the trend. Afterward June, trade flows recovered and past November 2020 they were higher up trend levels.

Another approach is to compare accumulated trade volume flows during the pandemic with what it would have been absent the pandemic, as shown in the correct console of Figure seven. The sum of negative and positive deviations from trend indicates whether the full accumulated volume of flows – that is a stock – is larger than usual or not.

The 8% "gap" in global merchandise merchandise volumes that unfolded in May 2020 was significantly reduced in late 2020 and throughout 2021. By November 2021, the accumulated volume of trade realised since the beginning of the pandemic was nevertheless 1% lower than that which would normally be expected. World trade volumes would need to expand by about 2.eight pct points from the November level to close the gap by March 2022.

Substantial imbalances remained in the 2d one-half of 2021

China'due south production was striking deep in January 2020 simply information technology rebounded much quicker than product in other regions. This supported coming together demands by other countries for "home nesting" products and certain medical products and led to a steep rebound of exports. The US and Euro Expanse production recovered later on, and the gap with historical trend volumes is non airtight still. While Euro Area imports aligned closely with production, the Us has seen imports surging more than industrial product, signalling important macroeconomic channels contributing to these imbalances. The cumulative export gap of the United States was even so negative at around 8% by November 2021, while the import gap was closed in May 2021 and settled at positive 1.8% in Nov as imports were substantially above pre-pandemic trend. (Figure 8).

Exports of emerging economies in Asia recovered in the wake of Mainland china's rebound, though not equally spectacularly. Latin America sustained its exports to some extent, mainly driven by raw materials. Simply recovery of Africa and the Eye East lags behind, with production and exports far behind trend and imports continuing at past levels.

As a result, China's share in world exports climbed from 12% in December 2019 to 15% in Jan 2021, but has since come down to 13% in November 2021. With the Chinese economy recovering relatively early in 2020, China's import market share increased somewhat in 2020, but has since levelled.

Endmost of trade gaps has likewise proceeded unevenly beyond different production categories. Among the top-10 products traded before the pandemic, simply four saw their merchandise gaps shut decisively by the end of Apr 2021. Precious metals and stones, which seem to have played a function as 'safe value haven', and Pharmaceuticals, for which demand grew globe-wide, recorded large positive merchandise gaps throughout the pandemic and had positive gaps of, respectively, 23% and xvi% in July 2021. Electrical and electronic machinery and equipment and Plastics saw their negative gaps fall from mid-2020 onwards and close in Oct 2020 and February 2021 respectively, reflecting a combination of increased volumes of trade (due to increased consumer demand), equally well as rising prices. In contrast, the gap in the value of trade of Mineral fuels and oils was still at -21% and the gaps for Motor vehicles and Organic chemicals were also nevertheless negative (-8.4 and -i%, respectively). Some of the rise in trade values is driven by higher prices, and then not all the closing of product gaps in Figure 9 is due to high merchandise volumes.

The send sector continued to recover in 2021, but pressures remain on transport costs

Maritime shipping is central for appurtenances trade. Illustratively, more than than 85% of EU imports from China including iron and steel products, furniture and bedding, toys games and sports equipment, travel by sea. Further, even for goods such as electronic and optical products, which are sometimes shipped past air, the share of ocean send exceeds 40%.

Global container shipping, which is at the eye of global supply chains, continued to recover in both belatedly 2020 and in 2021. However, both majority freight rates and container freight rates have been rising since mid-2020, and by mid-2021 reached the highest levels since the GFC (Effigy 10). Record loftier freight rates contributed to record revenues and earnings for aircraft companies. Container freight rates take been on a particularly steep ascent throughout 2021, only towards the end of the twelvemonth, forward prices are lower than spot prices, indicating that pressures are easing off. The industry is adding vessel capacity and in the medium term, the blockages at important sea ports are expected to ease.

While crude oil prices have recovered from their pandemic-induced lows and are contributing to inflationary pressures, they practice not explicate the calibration of increase in maritime transport prices. seven First, the increment in maritime freight rates began nevertheless the very depression fuel prices in the second quarter of 2020, which were at levels final seen in the early 2000s. Second, while rough oil prices are at present back to their 2018-19 levels, shipping costs are much college than in pre-pandemic times. This suggests that constraints on vessel chapters, not enough containers being available at the right port at the right fourth dimension, and maritime and on-shore logistics bottlenecks continue to be the main factor behind rising maritime freight rates. These upward pressures on maritime freight rates are also likely aided by the connected merely all the same not full — and regionally uneven — recovery of the air freight.

The high dependency of international trade on maritime transport can be illustrated with trade developments by style of transport. In the Eu, for which trade data by transport fashion are available, products traditionally transported by sea were affected more negatively during the COVID-xix pandemic than those traditionally exported by air. Looking at the relation betwixt export gaps and dependence on exports past air, we see that European union'due south exports recorded the smallest negative gaps or the largest positive ones in products which it typically exports via air (Precious metals, Optical instruments, Pharmaceuticals, and Electronics) (Figure 11, Console A). The deepest negative gaps where recorded for products that are typically non exported by air such as Mineral fuels (99% exported by sea transport), Vehicles (85% by ocean and further x% by rails) or Plastics (77% by bounding main and only 17% by air) (Figure eleven, Panel B).

Concluding remarks: Keeping track of trade developments

International trade in 2021 has recovered sharply from the slump in 2020. Despite impressive growth rates of world trade flows, the accumulated losses were not yet recuperated by the cease of 2021, but the gap can be expected to close in the outset quarter of 2022. While full trade flows are now comfortably above pre-pandemic levels, trade impacts beyond specific goods, services and trade partners are highly diverse and have been creating pressures on specific sectors and supply bondage. Substantial imbalances across trade partners and products remained at the end of 2021, most notably an increased merchandise trade surplus in Asia and a widening merchandise trade deficit in the U.s. as well as in Africa.

While it is still unknown which of the structural changes seen in 2020 and 2021 will simply be short-lived, some seem to suggest longer-term shifts or seem likely to outcome in long-term adjustments. The pronounced shift of consumer expenditures towards 'dwelling nesting' goods and away from sure services that crave person-to-person interaction is unlikely to persist. On the other manus, the large digitalisation push that materialised both in the work sphere and personal lives tin can be expected to have lasting impacts on the composition of demand for products and services and the manner those are traded internationally.

The unprecedented heterogeneity of changes in trade flows across products, sources and destinations signifies high uncertainty and adjustment costs, and implies additional incentives for consumers, firms and governments to adopt new — or to intensify existing — risk mitigation strategies. Some firms may want to rethink the resilience and reliability of their supply chains and may decide to try to shorten distances travelled from factories to consumers or internalise larger segments of their value chains within their own corporate structures (e.grand. an affiliate supplying a component rather than an external firm). This might contribute to resilience of some supply chains only information technology might also accept negative impacts on productivity and as shown in Arriola (2020[2]) it may non necessarily heave systemic resilience and stability of the global economic system.

References

[2] Arriola, C. (2020), "Efficiency and risks in global value chains in the context of COVID-nineteen", https://dx.doi.org/x.1787/3e4b7ecf-en.

[i] Arriola, C., P. Kowalski and F. van Tongeren (2021), "The impact of COVID-19 on directions and structure of international trade", OECD Trade Policy Papers, No. 252, OECD Publishing, Paris, https://dx.doi.org/10.1787/0b8eaafe-en.

[half dozen] Hyndman, R. and B. Billah (2003), "Unmasking the Theta Method", International Journal of Forecasting, Vol. 19/2, pp. 287-290.

[four] OECD (2018), Good Jobs for All in a Irresolute Earth of Piece of work: The OECD Jobs Strategy, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264308817-en.

[five] OECD (2014), "The crisis and its aftermath: A stress examination for societies and for social policies", in Society at a Glance 2014: OECD Social Indicators, OECD Publishing, Paris, https://dx.doi.org/10.1787/soc_glance-2014-5-en.

[three] OECD (2010), OECD Employment Outlook 2010: Moving beyond the Jobs Crunch, OECD Publishing, Paris, https://dx.doi.org/10.1787/empl_outlook-2010-en.

Notes

1 .

Parts of this notation rely on material from Arriola, Kowalski and van Tongeren (2021[1]) . Where possible this was updated with the about recently available information.

two .

Defined here as products belonging to the HS 4-digit category: electronic integrated circuits and micro assemblies, HS-8542.

iii .

The need surge in 2020 was initially related to increased demand for 'lockdown consumer durables', such every bit televisions sets, video-game consoles, appliances, and computer equipment, and fuelled past government stimulus. More recently (2021 Q1-Q2), further need has reportedly been fuelled by resurgent crypto currency mining.

4 .

To what extent were these developments driven by increasing prices of semiconductors? Cost comparisons of semiconductors are complicated due to the varied nature of products exported from whatever given country, involving a mix of high-end, high-margin chips and low-end, depression-margin chips (eastward.g. standard memory fries or chips used in motor vehicles). The latter blazon of fries can exist more "commoditised" and tend to experience more volatile prices. Nevertheless, unit of measurement prices calculated from trade statistics for 4 large exporters reveal that landed prices accept indeed been rising, but with meaning differences across exporters. In June 2021, the unit of measurement price of semiconductors exported past Germany was 49% college than in January 2020, while those of Chinese Taipei were 17% higher. Such disparate toll developments suggest meaning cross-region differences in semiconductor supply chains for different cease uses.

5 .

Note that due to several developments such as chip hoarding in 2018, falls in construction of new data centres and less crypto currency mining in 2019, semiconductor trade was sluggish in 2019.

6 .

The trend estimation and extrapolation uses a Theta model. This method fits a simple exponential smoothing (SES) model to monthly data between Jan 2010 to December 2019 (the log-likelihood gauge of SES smoothing parameter is 0.74) and and so extrapolates the trend for all months from January 2020 onward using a weighted average (the weighting parameter theta is prepare to two) of the SES and a linear time trend (the OLS estimate of the fourth dimension coefficient is 0.23). Come across, for example, Hyndman and Billah (2003[6]) .

seven .

Cost of fuel oil, which is used for maritime ship, is closely correlated with price that of crude oil.

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Source: https://www.oecd.org/coronavirus/policy-responses/international-trade-during-the-covid-19-pandemic-big-shifts-and-uncertainty-d1131663/

18 Hugo Kyngdon