The world economic #crisis resulting from the #pandemic has affected almost all countries in the world. The #recovery is now expected in most regions, thanks to a catch up effect, expectations of a vaccine and very supportive fiscal #policies.The crisis will nevertheless have lasting effects. It will bring or accelerate structural changes and will impact trade in several ways. Geopolitical tensions and a new US administration create further uncertainties. In this paper we briefly discuss some of these issues: - Changes in supply chains - Employment and consumption - Public deficits and “Zombie” companies - Geopolitical tensions - Biden administration - Oil and commodity prices - Conclusions About the Author: Victoire de Groote Global Head of Country Risk, HSBC

1. Will COVID 19 pandemic result in structural changes in trade? - ​by ​Victoire de Groote​, Head of Country Risk at HSBC
page 1 of 8 www.mitigram.com

2. Will COVID 19 pandemic result in structural changes in trade? - ​by ​Victoire de Groote​, Head of Country Risk at HSBC
COVID 19, economic crisis and trade
page 2 of 8 www.mitigram.com
The world economic crisis resulting from the pandemic has affected almost all
countries in the world. The ​recovery is now expected​ in most regions, thanks to a
catch up effect, expectations of a vaccine and very supportive fiscal policies.
The crisis will nevertheless have ​lasting effects​. It will bring or accelerate structural
changes and will impact trade in several ways. Geopolitical tensions and a new US
administration create ​further uncertainties​. In this paper we briefly discuss some
of these issues:
● Changes in supply chains page 3
● Employment and consumption page 4
● Public deficits and “Zombie” companies page 5
● Geopolitical tensions page 6
● Biden administration page 6
● Oil and commodity prices page 7
● Conclusions page 8
Author:
Victoire de Groote
Global Head of Country Risk, HSBC
Linkedin

3. Will COVID 19 pandemic result in structural changes in trade? - ​by ​Victoire de Groote​, Head of Country Risk at HSBC
Changes in supply chains
page 3 of 8 www.mitigram.com
The pandemic has evidenced for some countries the
vulnerability induced by the ​dependence​ on specific
suppliers. At the same time consumer’s concerns
related to climate change push for shorter trade routes.
Both factors could result in ​reshoring activities​ in
advanced economies or in neighbouring countries. This
however can only be done thanks to a rapid
automation of production processes and would not
result in growing employment.
In the short term, Asia countries have seen their
exports ​increasing rapidly​ thanks to exports of
pharmaceuticals, paramedical equipment and furniture
related to the development of WFH practices.
Other products have nevertheless seen ​a drop or a
stagnation​ and more importantly, investments have
significantly slowed down. This could be an early
warning of lower exports in the future.
(see graph: Export Volumes)

4. Will COVID 19 pandemic result in structural changes in trade? - ​by ​Victoire de Groote​, Head of Country Risk at HSBC
page 4 of 8 www.mitigram.com
Employment and consumption
Companies have seen a dramatic reduction in their
profits, they will have therefore to control their costs.
This will have an ​impact on investments​ but also on
employment and therefore on consumption.
The crisis is resulting in a worsening of ​income
disparities​ with more vulnerable households reducing
dramatically their consumption.
In the short term, data on employment have been
supported by the different schemes to maintain
household revenues, but as they unfold,
unemployment will increase​.
In addition, early indicators show, almost worldwide,
that households expect ​a decline in their revenues
and that consumer’s confidence remains low (except
in China). ​(see graph: Consumer Confidence)

5. Will COVID 19 pandemic result in structural changes in trade? - ​by ​Victoire de Groote​, Head of Country Risk at HSBC
page 5 of 8 www.mitigram.com
Public deficits and “Zombie” companies
State interventionism was a necessity during the
pandemic, but it could result in zombie firms that will
drag the pace of the recovery​ in the long term.
Manufacturing dropped dramatically due to lockdowns
(see graph: Manufacturing Production)​ but supporting all
enterprises in difficulties could result in ​supporting
enterprises​ that would have collapsed because of the
changes in consumption and behaviours.
More importantly, a misallocation of sovereign funds
would reduce the ability of the same sovereigns to
support ​economic changes​ and to develop competitive
sectors in high tech for example.
This could also ​affect trade​ by maintaining alive some
non-competitive sectors, a sort of hidden protectionism.

6. Will COVID 19 pandemic result in structural changes in trade? - ​by ​Victoire de Groote​, Head of Country Risk at HSBC
page 6 of 8 www.mitigram.com
Geopolitical tensions
Notably those between the US and China, but not exclusively -
have resulted in a move from global trade to a development of
intra-regional trade​.
Recent years have seen an increasing number of ​trade barriers​,
but also of​ bilateral trade agreements​, this trend being driven by
both China and the US.
In the short term this trend is expected to continue with an
emphasis on ​regional agreements​ as the recently signed RCEP
(Regional Comprehensive Economic Partnership).
Sanctions could ​further increase​ in the short term (see below
Biden’s administration priorities) and China could be one of the
targets but not the only one.
Sanctions are expected to be less towards individuals and more
related to ​production conditions​ and level playing field.
Biden administration
A Biden administration would be much more ​consensual​ than the
current one and more predictable. It would focus on restoring good
relations with traditional allies and bring back the US as a major
partner in international organisations.
The position against China would however not soften the supremacy
of the big data and high tech markets will remain the most important
challenge and a Biden administration could focus more than the
current one on ​human rights​ and ​environmental and social
conditions of production to justify sanctions and protectionism. There
is no liberalisation to be expected.
A trade deal between the US and the UK would not be a priority of a
Biden administration that would rather ​support the EU​ and would be
against any deal affecting the Good Friday agreements in Ireland. This
puts additional pressure on B. Johnson to sign a Brexit deal before
year end even if its implementation is only taking place next year.

7. Will COVID 19 pandemic result in structural changes in trade? - ​by ​Victoire de Groote​, Head of Country Risk at HSBC
page 7 of 8 www.mitigram.com
Oil and commodity prices
Oil and commodity prices are expected to remain low
(close to current levels): the initial decline in oil prices
was ​not due to the pandemic​, but to conflicts among
producers.
The drop in demand then aggravated the trend and
efforts by suppliers to ​control production​ have not
offset the negative impact of demand.
The pandemic has halted major consumers as air
traffic, but is also accelerating the move towards
more sustainable energies​.
The position of the future US administration towards
Iran and on human rights could be a ​major
determinant​ of relations within the region and of oil
prices. ​(see graph: Commodity Spot and Forward Indexes)
The basic scenario is for oil prices to remain around
current levels. Other commodities will also be impacted
by ​low world demand​ even if construction will be
boosted by credit growth in China but also in other
countries.

8. Will COVID 19 pandemic result in structural changes in trade? - ​by ​Victoire de Groote​, Head of Country Risk at HSBC
page 8 of 8 www.mitigram.com
Conclusion:
End of globalisation
This trend began before the pandemic but has been
emphasized by it and could even result in a
de-globalization​.
The change in the US administration will not revert this
trend, and trade is expected to face as many hurdles, if
not more. It will however be done in a predictable way.
During the coming years, intraregional trade ​is expected
to expand​ with possible new trade routes as more trade
among EMs.
Commodity trade will ​remain constrained​ by relatively
low world demand.
Author:
Victoire de Groote
Global Head of Country Risk, HSBC
Linkedin