What impacts can a pandemic have on world trade?

The Coronavirus (Covid-19) pandemic, declared by the World Health Organization (WHO) on March 11, is already causing serious damage to world trade. Not only due to the lockdown imposed by governments, but also due to the significant number of deaths and diagnosed cases. According to the Worldometer website, worldwide, the number of infected people is over 2 million, with more than 130,000 confirmed deaths.

In this context of apprehension due to the escalation of a new virus that is believed to have been created spontaneously, the entire economic system collapses. What can be done to at least reverse the material damage caused by such a calamity?

To help find answers, we talked to the Customs and Tax Lawyer at Compliance Exportação e Importação, Sidnei Lostado. He is a specialist in foreign trade, working for over 30 years for clients in this area. Keep reading!

What is considered a pandemic?

Before declaring the pandemic, the WHO had already issued an alert, declaring on January 30 a state of global emergency. However, records have multiplied around the world, leading the entity’s Director-General, Tedros Ghebreyesus, to declare the pandemic.

The difference now is that, in a pandemic, the recommendations previously made in the state of emergency apply to all countries, without exception. There is no fixed number to determine the pandemic state, which is essentially characterized by the registration of a significant amount for health authorities.

Compared to other crises caused by the spread of diseases on a global scale, the effects of Covid-19, as Sidnei Lostado points out, are very serious “with almost 30 years of advocating in the area of foreign trade, it is the first time that I notice such a large retraction in international business, which directly impacts production and the economy. We are at the center of the pandemic and now, nothing can be done, as countries are focused on solving the biggest health crisis of the 20th and 21st century”.

How can a pandemic impact world trade?

In terms of impact on world trade, the current crisis caused by Covid-19 will have consequences similar to those of a war. According to Lostado “I believe that we will have, in the medium term, a new “Marshall Plan” (recovery plan for Europe after World War II) to help countries recover. Possibly, this hypothetical contingency plan will have financial aid from China, which will need an economically strong world to absorb its production”.

In this context, maritime operations are seriously affected, with international freight prices plummeting severely. In January, rates had already dropped by around 50%, with reductions in the prices of commodities such as oil and copper also being highlighted.

About this sharp drop, Sidnei Lostado observes that “naturally, the next agenda will be economic restructuring, which must be articulated with companies, governments and international organizations, especially the WTO (World Trade Organization), Mercosur (Southern Common Market) and ALADI (Latin American Integration Association), with the objective of ensuring a beneficial international relationship for all”.

How to protect cargoes in these cases?

It is worth mentioning that the drop in fees charged in freight operations had already been on the decline since 2018, when successive international trade wars between the USA and China led prices to fall in sequence. 

Therefore, it is expected that, after the pandemic, the focus will be less on defending domestic agendas and more on the recovery of the global economy. “Future debates must focus on avoiding excessively protectionist measures, closing off foreign trade to protect national industry with the — false — argument of improving the condition of the people. I say false because Brazil until 1991 closed itself off to the world and only made economic progress when it opened up to foreign trade”.

In addition to non-protectionist treatment in the future, it is also necessary to take care of the effects of the crisis in the present. One is a potential avalanche of lawsuits due to the cargoes withheld due to the lockdown. This is the extreme containment regime, in which all productive activities are suspended.

In this regard, Lostado explains that in the Brazilian case “the lockdown was a surprise for everyone, especially for those who imported goods before the pandemic was declared. In this case, I do not recommend to file suit or injunction to postpone the payment of import taxes for 180 days. This is because this authorization can only be carried out by law, according to article 153 of the National Tax Code. The judicial branch cannot replace the legislator”.

According to the expert, the best thing to do is “negotiate storage costs or arrange for immediate transport to your factory or final destination”.

What can we expect for the next few months?

It is not the first time that world trade has been seriously affected by a pandemic. The “mother” of all, the Spanish Flu that plagued the world in 1918, killed at least 21 million people worldwide. 

Although the records are precarious, there are studies that show that the stoppages caused by the pandemic caused the world GDP to shrink by about 6%. It is also estimated that the drop in general consumption was 8%, according to the study for the World Economic Forum Coronavirus and the lessons we can learn from the 1918-1920 great influenza’s pandemic.

Considering the gravity of the moment and in view of the impacts of other pandemics, Sidnei Lostado sentences “initially I believe that 2020 is over. We can already get it off the calendar, because this year, as soon as the pandemic ends, companies will limit themselves to doing calculation and reviewing contracts. Banks will encourage loans and various economic scenarios will be analyzed based on good policy and international guidelines.”

He continues: “to follow more closely, I recommend seeing data from the Ministry of Economy, Ministry of Industry and Commerce and data from the BNDES. These agencies work with information from the country and projections for the world economy”.

Should we be on the alert going forward?

The lessons from the past, on the other hand, serve as a valuable source of learning for nations to better deal with the consequences of the pandemic. Because of this, Lostado believes that “it will be necessary to wait for a set of laws. The legal structure that we have today does not allow us to make many movements, however, as soon as the pandemic issue is resolved, the executive and legislative branches should adopt a series of legal measures to reduce its economic impacts”. 

In any case, world trade will also need to study ways, with the health authorities of the countries, to try, at least, to minimize the chances of a new virus to emerge.

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