The trade impact of the COVID‐19 pandemic

Abstract

Using a gravity-like approach, we study how Covid-19 deaths and lockdown policies affected countries' imports from China during 2020. We find that a country's own Covid-19 deaths and lockdowns significantly reduced its imports from China, suggesting that the negative demand effects prevailed over the negative supply effects of the pandemic. On the other hand, Covid-19 deaths in the main trading partners of a country (excluding China) induces more imports from China, partially offsetting countries' own effects. The net effect of moving from the pre-pandemic situation to another where the main variables are evaluated at their 2020 mean is, on average, a reduction of nearly 10% in imports from China. There is also significant heterogeneity. For example, the negative own effects of the pandemic vanish when we restrict the sample to medical goods and are significantly mitigated for products with a high "work-from-home" share or a high contract intensity for products exported under processing trade, and for capital goods. We also find that deaths and lockdowns in previous months tend to increase current imports from China, partially offsetting the contemporaneous trade loss, suggesting that trade is not simply "destroyed," but partially "postponed."

On COVID‐19 pandemic and China’s foreign trade

“…Baldwin (2020) pointed out that the pandemic might lead to a more severe trade recession than the outbreak of the global financial crisis in 2008–2009, as the pandemic is both a demand shock and a supply shock while the 2008–2009 recession was driven mostly by a demand shock. A similar and provocative study is by Liu et al (2021), also using the data on monthly year‐over‐year growth of China's trade. Liu et al (2021) find that the lockdown restrictions had affected imports more severely than the direct health and behavioural effects of the pandemic itself.…”

“…A similar and provocative study is by Liu et al (2021), also using the data on monthly year‐over‐year growth of China's trade. Liu et al (2021) find that the lockdown restrictions had affected imports more severely than the direct health and behavioural effects of the pandemic itself. This paper focuses on analysing and capturing changes in China's trade by using the same data and then offers some policy recommendations for China's future trade development.…”

International Trade Spillovers from Domestic COVID-19 Lockdowns

“…Related literature. Our paper contributes to a burgeoning literature on the propagation of the COVID-19 pandemic shock through global trade (e.g., Bonadio et al, 2021;Espitia et al, 2022;Lafrogne-Joussier et al, 2022;Liu et al, 2022).…”

“…The COVID-19 pandemic constituted both a demand and a supply shock and the twin nature of the shock was expected to lead to a sharp decline in trade (Baldwin and Tomiura, 2020;Buchel et al, 2020;Liu et al, 2022). For an economy experiencing COVID-19, the economic contraction resulting from domestic pandemic containment policies, such as restrictions on mobility (and social distancing), was expected to lead to a large contraction in demand, and thus a decline in imports.…”

COVID‐19, trade collapse and GVC linkages: European experience

“…Büchel et al (2020) focused on Switzerland and found that the country's trade decline depends mainly on domestic and foreign demand shocks. Similarly, Liu et al (2021) concluded that negative demand effects in both dimensions (direct and indirect effects of the pandemic and response measures) predominate when using year‐over‐year monthly growth in imports from China at the HS 6‐digit product level. Another strand of the relevant literature examines the transmission function of GVCs from the perspective of their impact on real economic activity and prices (Meier & Pinto, 2020), output adjustments to cross‐sectoral effects of labour supply shocks (Bonadio et al, 2020; McCann & Myers, 2020), and aggregate welfare, through both deaths and reduced gains from trade (Antras et al, 2020).…”