The World Trade Organization (WTO) has issued a briefing note outlining where and how trade costs may increase due to the COVID-19 pandemic. The report highlights that transport and travel have the most significant single impact on international trade during the pandemic.
El Valid identity document Published on August 12, 2020, entitled “Trade Costs in Times of a Global Pandemic,” the report identifies three main sources of rising trade costs in the COVID era: transportation and travel; trade policy; and uncertainty. Other determinants of trade costs identified in the report include information and transaction costs, information and communications technology (ICT) connectivity, and governance quality.
Transport and travel, the authors note, account for roughly 15-31% of trade costs by sector (15% in agriculture, 31% in manufacturing) and have been severely affected by measures taken in response to COVID-19. Travel restrictions and border closures, for example, have directly affected trade in goods and services. These types of restrictions, the report emphasizes, will constitute a substantial increase in trade costs as long as they remain in place. The impacts extend to both maritime and land transport and include significant disruptions to air freight capacity, which the WTO notes declined by almost 25% in March 2020.
Trade policy barriers and regulatory differences also account for a significant share of costs across sectors, accounting for about 10% of total trade costs in each. These barriers include tariff and non-tariff measures, temporary actions, and the costs of crossing borders, among other policies that impact trade, such as intellectual property protection. The report notes that despite several trade facilitation measures aimed at ensuring the supply of personal protective equipment and other medical equipment, shortages of essential supplies due to COVID-19 led many governments to impose restrictive measures on exports.
General uncertainty and risk aversion have increased trade costs during the pandemic. The report highlights the reduced appetite of companies to invest in new business relationships, as seen in recent financial and geopolitical crises, as well as the reduced availability of trade finance, each of which can have a disproportionate impact on emerging and developing economies.
The WTO concludes that trade cost changes are “expected to reverse once the pandemic is under control” but warns that policy changes and market dynamics may cause ongoing disruption. The report identifies selective government-imposed travel and air restrictions and reduced airline competition as potentially causing higher trade costs to persist until the virus has been eliminated.
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