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Trade in the Shadow of COVID-19

There are few signs of optimism in the shadow of COVID-19. The International Monetary Fund is projecting a recession of Great Depression levels, with trade declining by 34 percent and unemployment in the United States reaching 15 percent. Most other forecasts are not that pessimistic, but we should nonetheless look at all of them with a pinch of salt. No one has dealt with a “viral” depression before and most projections are being driven by the short-term results of the dramatic lockdown of national economies rather than soundly based on economic fundamentals.

The developed world entered the lockdown of individuals and the closing of industry in fear of a collapse of health services. That was just over two months ago. The impact has shaken the “norm” of our lives and is creating uncertainty and fear. The success of the lockdowns can be measured by the reduction in the rate of new infections and deaths. The economic impact is also measurable but depressingly so, and industrial production and demand for goods have both dropped to levels beyond what is acceptable. As the rate of deaths and new infections decline, politicians are trying to calculate where the equilibrium might be between the economy and the loss of lives. Those decisions are not being helped by pessimism about industry recovering and consumers’ fear of coming out of their homes despite hardships. Purchasing manager indices are all depressed due to lack of confidence.

Much will depend on consumers’ willingness to return to spending, assuming that businesses can be opened quickly enough to soak up the huge levels of unemployed individuals. Our view is that second-quarter economic growth will be significantly worse than the previous quarter, but we continue to expect recovery to come in the second half of the year, especially the fourth quarter and into 2021. This is based on the big and somewhat tenuous assumption that there is no second wave of the virus.

Our expectation is that U.S. imports of containerized goods in 2020 will be down by around 10 percent. This is much the same as we had in our April forecast.