Asia trade at risk of suffering long-term hit, warns development bank

Greetings from self-isolation in Tokyo. I have no symptoms of coronavirus, but I recently flew back from the UK so I have to stay in isolation at a given address for two weeks. Business in Japan gets done face-to-face, so it’s quite a handicap. It also illustrates Japan’s hot-and-cold attitude to the virus. On one hand, schools have been closed for a month and the authorities are tough on foreign arrivals, but on the other, shops and restaurants are still open and from my window I can see lots of people out and about. If anything, mask-wearing in Tokyo is less prevalent now than it was in early March.

Today’s main piece looks at the Asian Development Bank’s new Development Outlook, which looks at the impact of Covid-19 on the Asian region, and shows regional trade was already struggling before the virus hit. Our policy watch looks at India’s efforts to ban hydroxychloroquine exports, while our chart of the day looks at the fall in travel services in the US.

A pandemic that could ‘fundamentally change the global economy’

Trade fell across developing countries in Asia during a difficult 2019 and will fall further in 2020 because of the Covid-19 outbreak. That is the conclusion of the Asian Development Bank (ADB), the main regional development institution for Asia, in its flagship outlook report for the region. 

Exports for Asia’s developing nations were down 3 per cent and imports down 4 per cent last year even before the virus hit, mainly because of trade tensions between the US and China. The figures are a reminder that global trade was already in trouble and the risk is that the pandemic makes matters worse.

“This is a pandemic that can fundamentally change the global economy,” said Yasuyuki Sawada, chief economist of the ADB, in a briefing to launch the report. “Supply chains could be permanently interrupted and there could be a retreat from globalisation and regional integration.” That would be especially bad for Asia, he said, which had benefited hugely from global trade.

Before the virus struck, opposition to free trade came from those who have lost out — notably manufacturing workers in rich countries — and those who dislike the pooling of sovereignty needed to eliminate trade barriers. Donald Trump, the US president, channelled both forces into his dispute with China.

But the outbreak has illustrated some genuine downsides to global supply chains from the national point of view: if you do not have a national diagnostics industry, or a local maker of ventilators, then you will struggle to obtain them in your hour of need. Combine the existing resentments of free trade with a situation showing genuine benefits to national control and you have a potent political case. Once the pandemic is under control, governments are likely to rethink and expand the list of domestic industries they consider essential, reducing the scope for trade.

There is still long way to go before the pandemic is under control, however, and the ADB is in the relatively optimistic camp on its economic impact. It forecasts growth of 2.2 per cent in developing Asia this year, down from 5.2 per cent in 2019, before a rebound to 6.2 per cent in 2021. That assumes the virus is tamed by the autumn, that there is no big second wave of infections and that the economic downturn does not turn into a financial crisis.

Any lockdown of textile exporters in Bangladesh would be a huge threat to the country’s economy © Mehedi Hasan/NurPhoto/Getty

Mr Sawada said the countries most open to trade or dependent on tourism would be those hardest hit in the region. “These may include the Maldives, Cambodia, Fiji and Thailand,” he said. For other developing Asian countries, the greater risk is a big domestic outbreak, forcing the lockdown of exporters such as textiles in Bangladesh or electronics in Vietnam.

Asia’s imports will contract more than its exports, the ADB forecast, making it a drag on global demand. “The region’s current account surplus is projected to increase to 1.6 per cent in 2020 and fall back to 1.4 per cent next year, mainly driven by current account dynamics in the PRC [China], which accounts for about 60 per cent of the total,” said Mr Sawada.

For several decades, Asia has been the great winner from global trade, with successive countries using export-led growth as their route to riches and economic development. That route was already getting harder to follow. If coronavirus brings a further backlash, it could narrow into a painful bottleneck for the developing countries that count on trade to escape poverty.

Charted waters

President Donald Trump suspended travel from Europe to the US on March 11 in an effort to slow the spread of Covid-19, but there had already been a decline in US transport and travel services in the run-up to February, possibly due to a fall in visitors from China. The dip at the time of the global financial crisis in 2008 shows that there is considerably further to fall.

Policy watch

On Saturday, the Indian commerce and industry ministry issued a circular banning exports of hydroxychloroquine, tightening existing export controls as it looks to combat rising numbers of coronavirus infections, writes Aime Williams.

Donald Trump has called on India to release orders of hydroxychloroquine, the antimalarial drug he claims, without evidence, will be a ‘game changer’ in treating coronavirus © John Locher/AP

The Indian Council of Medical Research has recommended the antimalarial treatment as a preventive medication for people at high risk of contracting coronavirus.

US president Donald Trump called on India to release orders of hydroxychloroquine, and said that during a phone call with Indian prime minister Narendra Modi on Saturday he requested more of the drug because the country made it in “large amounts”. 

“I said I’d appreciate it if they would release the amounts that we ordered and they are giving it serious consideration,” said Mr Trump during a White House briefing over the weekend. He repeated his claim that hydroxychloroquine was a “game changer” despite a lack of concrete evidence about its effectiveness.

Don’t miss

• The Trump administration reached a deal with 3M to import its respirator masks from abroad and will also allow the US manufacturer to continue selling its masks to Canada and Latin America after concerns the trade might stop, given the US crackdown on exports of protective medical equipment.
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• UK-based suppliers to the fashion industry are warning they face being wiped out as retailers extend payment terms and cancel orders. One supplier warns that “we have witnessed the effective cancellation of an entire season”.
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• South Korea’s factories are stretched to the limit churning out virus tests, as soaring global demand for Covid-19 diagnostics strains the heart of the biotech supply chain.
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Tokyo talk

The best trade stories from the Nikkei Asian Review

• Japanese electronics companies such as NEC and Toshiba are seeing new demand for their contactless technology as the coronavirus makes consumers around the world squeamish about using their hands.
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• The founders of videoconferencing company Zoom and the ventilator maker Mindray are among a number of Chinese billionaires who have seen their net worth skyrocket along with demand for their products amid the coronavirus outbreak.
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Source: Economy - ft.com