Global and Domestic Trade- May 2020
The outbreak of COVID-19 has upended attempts to curb rising protectionism, with recessionary headwinds and an expected decrease in world trade between 13% and 32% in 2020 projected to complicate attempts at negotiating an end to residual trade war tensions. Fears over the reinvigoration of protectionism as global trade systems become even more insular has further threatened the progress of globalisation. Specifically, the virus has revealed the "downsides of extensive international integration" as the entrenchment of China in global supply chains has increased the transmission of financial contagion globally. The vulnerability of a closely integrated economy, as the OECD has identified, will likely reduce global growth to 1.5% in 2020, with industries that rely on the movement of goods and people as well as those with cross-border supply chains likely to incur the largest costs.
Australia remains particularly exposed to changes in the global trade system. Notably it is a small, open economy with a narrow export base. Hence, China has remained a crucial component of Australia's trade narrative, contributing to 60% of our $180 bn net export growth in the past decade. With China's growth expected to reach 1.2% in the midst of COVID-19, Australia's trade sectors can be expected to remain relatively resilient against global trade shocks. Nonetheless, political tensions may undermine this ongoing relationship, as recent coal restrictions and customs inspection rules present a new threat to Australia's export dependency. With US-China trade war tensions slated to escalate, this is a worrying precursor for the future of a globally integrated trade system.