Spotlight on Economics: How will COVID-19 Affect International Trade? –

Image and content provided by NDSU Extension

By Anupa Sharma, Assistant Professor and Challey Institute Fellow

NDSU Agribusiness and Applied Economics Department

The COVID-19 pandemic has affected 185 countries so far.

Several countries have put major production centers in lockdown to contain the outbreak and prevent the further spread of the coronavirus. The lack of parts, components and labor resulting from the lockdown has paused many global manufacturing production chains.

During pandemics, such as the current novel coronavirus outbreak, a supply-led recession is considered normal or even an efficient market response. But as the news arrives from different corners of the world and new data are becoming available, what is clearer is that the health and economic effects of COVID-19 are far greater and complex than first anticipated.

While the disruption in the supply chain is more visual, the pandemic has affected the demand side as well. When the demand for output falters, or output falls because of the negative supply shock, trade naturally slows.

The economics behind this is complicated because the decline in demand (or supply) occurs not only in the high-contact sector, such as tourism, but also in the low-contact sector. For example, people purchase less gasoline even though the gas stations remain open during the lockdown.

Then the question arises: What do people do with the money that is not spent on gasoline? In some cases, the unavailability of goods leads to increased demand for some other products. Take, for instance, people who have stopped going to