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The impact of lockdowns international trade

Lockdowns and other restrictions implemented by the governments in the course of Covid-19 have contributed to the interruption global trade of products. We have found that bilateral trade decreased more when lockdowns were first introduced in the Spring of 2020 with greater rigidity. Furthermore, the effect that lockdowns have on commerce diminished in the second quarter of 2020. This is the most evident case of lockdowns imposed by the exporting country that have no or little major impact on trade during the second quarter of 2020.

Rebound and collapse of international trade following the outbreak of the covid-19 virus.

The Covid-19 epidemic caused governments to implement various restrictions with different degrees of rigor across time and the space. This severely perturbed social and economic activities. The restrictions impacted individuals’ ability to travel to workplaces and consume food or travel. They impeded the flow of production in particular when businesses had to coordinate with their suppliers and customers. For businesses who are involved in international trade the ability to conduct business across borders was impacted by the combination of demand and supply disruptions resulting from these limitations. In the case of international transportation logistics, disruptions added a new layer of complexity to cross-border transactions.

The chart 2 shows the annual rate of growth in exports of goods to 31 countries. This group of countries comprises the world’s largest trading nations and the trade growth of these countries is an excellent indicator of the global trade growth.

The graph shows that global value of trade dropped at the beginning of the year 2020, in the period when several countries introduced lockdowns and other restrictions related to Covid-19. Between April and May of 2020 specifically the value of exports decreased by approximately 25% in comparison to the same month prior to the year. It is because of a decrease in the amount of exports that are part of continuing relationships with trade (exporting country, importer country, and more detailed product) as well as less as a result of a decrease in the volume of trade transactions (number of countries that are trading with foreign partners and the products exported).

The rebound in global exports began in June of 2020, and exports had returned to pre-crisis levels by September 2020. Incredibly, the improvement continued into the autumn of 2020 at a fast pace, despite the introduction of the new restrictions being imposed in Europe in the second wave of pandemic.

Exports fell more in countries that have tighter lockdowns
The decrease in exports from countries during the first phase of the pandemic is directly connected to the rigor of the controls imposed by the governments.

This is basing on Chart 3 where data on export growth for each country between April 2020 to April 2019 and data on the severity of lockdowns by countries from April to 2020 have been merged. Lockdown stringency is a measure of the entire set of restrictions imposed by government officials, such as closing of schools, workplaces and restrictions on gatherings or closures to restaurants, shops or other restrictions on transport as well as international flights. The chart 3 illustrates that countries who imposed stricter restrictions in April 2020 witnessed an increased drop in their exports.

In a country such as France where the restrictions were especially extreme in the spring of 2020, a dramatic reduction in exports when compared to the previous year can be observed. In those countries where less restrictions were imposed due to a different way of managing the outbreak (Sweden) or due to the less severe outbreak (Japan) overall exports fell significantly less.

In a more in-depth study, Berthou and Stumpner, (Banque de France mimeo 2021) analyze quantitatively the impact of the restrictions’ rigor on imports and exports with the help of bilateral trade data which are analyzed at the product level. Their estimates show that the importance of trade bilaterally between countries diminished more so when restrictions were put in place with greater rigidity. This finding is valid even when additional restrictions are included in the estimates in order to reflect cross-country differences in the course of the pandemic. These could have affected exports as well as imports in addition to the seriousness of the restrictions imposed by the governments.

The effect of trade restrictions has diminished over time.
The chart 1 in this blog outlines the development of the impact of lockdowns, whether in the country that exports (blue lines) or the country that imports (red line) and on trade between the two countries over time. When restrictions first came into effect during the first quarter of the year 2020 expect an increased impact on trade bilaterally when restrictions were imposed in the importer’s country than restrictions that were imposed in the exporting nation. This suggests that in the beginning restrictions had a more significant impact on the demand of consumers as opposed to the capacity of companies to create.

In time, the effects of the restrictions in both the country that is exporting and the one that imports has decreased. One possible explanation is the adaptation of households and businesses to the changing conditions. Teleworking was expanded in a variety of industries and except for situations where social interaction is necessary (e.g. restaurant and bars) permitted a continued economic activities.

At the end of 2020 the effect of lockdowns that are imposed in the country that exports the goods on trade between the two countries will be similar to zero, meaning that the adaption permitted exporters to offer their customers abroad regardless of lockdowns imposed in their country. For the need side, we expect a decrease in the impact of lockdowns by the country that imports the second quarter of 2020. However, the impact remains important even through the end of 2020, which suggests restrictions are still a hindrance to trade and imports from countries that are not.