THE ECONOMIST

The relevance of economics on international trade and ports?

6 years ago

COMMENT: Harping on a familiar subject, we really do need to ask ourselves what relevance economics has on international trade? writes Ben Hackett.

Last year we saw the collapse of Gross Domestic Product, (GDP), the measure of a nation’s economic activity, resulting from lockdowns and the COVID-19 pandemic, to a level well beyond what was experienced during the 1930s Depression.

We expected trade to collapse because of a drop in consumption. By the end of the year we can say that it did not happen to all intents and purposes. The stock markets rocketed ahead despite the adverse economic situation and the mounting deaths from millions of COVID-19 cases. Perhaps old people dying does not count? In any, case the level of optimism is hard to explain.

Clearly the stock market is a poor guide to the economic outlook. As we entered 2021 things took a turn for the worse. The pandemic worsened and deaths dramatically increased resulting in lockdowns in most of Europe and parts of Asia with only the U.S. refusing to take any serious action.

Lengthy lockdowns will result in dramatic slumps in the GDP again in the first quarter, if not in the second as well. Vaccinations will not be a quick fix. All the bad news had only a short term impact on global trade, the declining volumes were primarily in the first half of 2020.

Supply chains reacted well and there were few shortages for consumers and some short term disruptions for industry worldwide. Toilet paper came into high demand, as always during an economic crisis.

By the end of 2020 trade volumes for the year had virtually recovered to 2019 levels and 2021 can probably be predicted to see further growth in volumes, with the exception possibly of crude oil. China is leading the way in terms of recovery as the country continues to be the main driver of trade regionally and globally, tariff wars notwithstanding.

Looking forward we should pay more attention to consumer demand and the rapid growth of on-line, next day, delivery sales as a guide to trade growth. GDP has never been a solid or serious predictor of trade for the short term and rarely useful for the long term.