Assertions from the Article
The global market has been experiencing economic shocks for a long time due to recessions and adopting protectionism ideologies by the US and China. COVID-19 pandemic has exacerbated these shocks by occasioning shifts in supply and demand patterns. According to Dollar (2020), global trade decreased by 18.5% in the second quarter of 2020, a sharper drop compared to the Gross Domestic Product. This drop has been occasioned by reduced demand for electronics, cars, and tourism, the most internationally traded services and goods. Dollar (2020) notes that international trade is bound to take a different turn to survive the economic shocks that are being witnessed around the world. Notably, countries worldwide may experience an accelerated spread of Industry 4.0 by deploying more robots to cut down production costs.
Further Predictions
The current trends are bound to continue, considering that the pandemic may last longer than was predicted. The US-China trade war is set to affect global trade levels, prices, and exchange rates if the two countries continue to have contrasting economic ideologies. The back and forth means that developing countries will be forced to choose whether to conduct business with either the US or China. Similarly, increased protectionism, which would translate to eliminating imported inputs in value chains, would create a poor environment for economic development (Evenett, 2019). Nonetheless, there is a possibility that advanced economies would consider shifting labor-intensive production activities to developing countries to reduce costs.
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How Businesses Might Need to React
Businesses need to adopt practical strategies to ensure that they remain profitable even if the global economic landscape is unpredictable. Notably, they need to liaise with policymakers to facilitate new trade agreements which pave the way for a free trading system. According to Athukorala (2020), free trading systems are associated with seamless exchange of data, subsidies, simplified customs procedures, and assurance of intellectual property rights (IPR) protection. Similarly, businesses located in advanced economies should source labor-intensive production procedures to developing countries to accelerate international growth. Such measures will also go a long way in eliminating extreme protectionism ideologies and, in turn, cushion businesses against financial shocks in the future.
References
Athukorala, P. (2020). Free trade agreements in the world trade system: substance and semantics. Foreign Trade Review, 55 (1), 13–20. https://doi.org/10.1177/0015732519886771
Dollar, D. (2020, November 17). The future of global supply chains: What are the implications for international trade? Brookings. https://www.brookings.edu/research/the-future-of-global-supply-chains-what-are-the-implications-for-international-trade/
Evenett, S.J. Protectionism, state discrimination, and international business since the onset of the global financial crisis. Journal of International Business Policy, 2 (3), 9–36.https://doi.org/10.1057/s42214-019-00021-0
