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Regional growth in goods trade has been more varied than ever before amid the recovery from the pandemic, according to a World Trade Organization (WTO) report. The East – steered by China – is dominating the global rebound, while Western powers lag behind.

It has been clear for the last 12 months that East Asian economies have not taken the same hit from the pandemic as their counterparts in the West. As lockdowns choked industry and everyday life in Europe and the US last year, the people of Wuhan staged a large pool party in the summer, free from Covid restrictions.

The sense of optimism is reflected in China’s trade flows. Trade during the first seven months of 2021 increased 35.1% to US$3.3tn, according to the latest figures by General Administration of Customs, a government agency.

More broadly across Asia, merchandise export volumes were up 15.4% (figure 1) in the first quarter of 2021 compared with the same period in 2019. Meanwhile exports from all other regions were down compared with two years ago, finds the WTO.

The oil rich powers of the Middle East were hit particularly badly, notching a decrease in exports of 19.9% for the period. African exports were down by 11.2% and, for Europe, a 2.4% decline was recorded.

 

Figure 1: Goods exports and imports change, Q1 2021 vs Q1 2019 (%)

In global services trade, exports remained depressed in the first four months of this year, says the WTO, with China the major exception. The Asian powerhouse recorded growth of 25% for January to April compared with the same months in 2019. India’s services exports were up 3% over the period, while those of Germany, France and the UK were down 5%, 7% and 9% respectively.

 

Peaking too soon

Some believe the stunning recovery of the Asian powerhouse is peaking. “China is likely to remain the world’s leading exporter for the near future. However, its exports dominance in the global economy may be approaching its peak,” reads an April blog by the United Nations Conference on Trade and Development (UNCTAD).

Similarly, Sarah Fowler, international economy analyst at Oxford Analytica, tells GTR: “Having enjoyed a V-shaped economic recovery over the last 12 to 15 months, economic activity is now plateauing in China. There is less impetus from public spending, and GDP growth will slow in coming quarters.

“Added to this, the resurgence of Covid-19 restrictions in other parts of Asia, notably several Southeast Asian countries, will disrupt supply chains, especially in electronics and high-tech equipment and final consumer goods.”

She points out that US and European economies are strengthening, and that all these factors combined mean that Asia, which will still grow robustly, will be less of a leader in the global recovery in the coming months.

GDP is projected to grow by 6.4% in the US and 5.3% in the UK this year, while China’s GDP is expected to rise by 8.4%, according to data by the International Monetary Fund (IMF). But this is building off different bases – the two Western economies’ GDP decreased last year, 9.9% for the UK and 3.5% for America, while China’s rose 2.3%.

However, the so-called “factory of the world” is experiencing increasing labour costs that are chipping away at its competitiveness, which will likely lead to the long-term shifting of supply chains to lower-cost countries. Tariffs on goods from China and geopolitical tensions will also be contributing factors to relocation.

Last year, electronics giant Samsung said it would stop making computers in China amid rising costs and geopolitical friction. The company still makes components in India and Vietnam.

“China’s economy is maturing to be more reliant on domestic rather than foreign demand, as the prominence of exports in the Chinese economy has been rapidly declining in recent years. For global trade, this implies that Chinese imports are likely to increase faster than exports, thus eroding China’s exports’ share in the global economy,” states UNCTAD.

Fowler says it is too early to tell whether Asia, as the fastest region out of the pandemic recovery blocks, will spark a major change in the world order and global trade. But it is safe to say that, coming out of the pandemic, China’s grip on world trade is stronger than ever before.

 

Global recovery needs vaccines

There are many more elements to the global trade recovery outlook than just comparing Asia and the West’s rebounds.

The WTO has made it clear that a successful recovery in global trade requires widespread access to vaccines. “Leading indicators confirm positive signs of recovery in goods trade during the second quarter of 2021, but purchasing managers’ indices suggest weaker growth in services trade.

“As of May 2021, the number of international flights was just over half their pre-pandemic level. A full recovery for international travel, and for global trade in general, depends on rapid, equitable access to Covid-19 vaccines around the world,” says Ngozi Okonjo-Iweala, director-general of the WTO, in the report.

The United Nations and Okonjo-Iweala have previously warned that sluggish vaccination programmes in poorer countries are threatening the global recovery – and that it is in the world’s best interest to vaccinate all populations as quickly as possible.

In terms of trade, least-developed countries’ (LDCs) merchandise exports decreased by 12% last year compared with 2019, while services exports collapsed by 35%. Goods trade suffered particularly from a sharp drop in fuel prices, with fuels and mining products representing around half of LDCs’ goods trade.

On a positive note for resource-reliant LDCs, commodity prices are rising again. In May, fuel prices were up by 194% year-on-year. Prices for metals increased by 54% and agricultural raw materials were up by 26%, finds the WTO.