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Trade in Asia and the Pacific recovers to surpass pre-pandemic levels but outlook remains fragile

After a dramatic year for the global economy, international merchandise trade in the Asia-Pacific region and the world has rebounded strongly in 2021, surpassing pre-pandemic levels.

ESCAP estimates that the value of global merchandise exports and imports has grown 24.6 per cent and 23.8 per cent, respectively. Regionally, trade growth has been slightly lower at 23.1 per cent and 22.8 per cent, respectively. As a result, the Asia-Pacific region’s prominence in global merchandise trade has declined marginally in 2021 to 41.0 per cent of the world’s exports and 36.8 per cent of global imports from levels of 41.5 per cent and 37.1 per cent, respectively, in 2020.

Fig. Nominal global and Asia-Pacific region’s merchandise trade performance

Fig. Nominal global and Asia-Pacific region’s merchandise trade performance

Source: ESCAP calculation (Asia and the Pacific Trade and Investment Trends Report 2021/22).                    

However, removing inflationary effects, ESCAP finds that Asia and the Pacific clearly outperformed the rest of the world with real export and import growth at 10.0 per cent and 9.1 per cent compared with respective shares of 7.7 per cent and 6.7 per cent globally.

A sharp trade rebound driven by demand outside the region as well as inflation

Across the region, trade performance has been heterogeneous. North and Central Asia as well as South and South-West Asia have been enjoying higher-than-average regional trade growth driven by increased commodity prices such as in oil, food and metals. Exporters of advanced manufactured goods, particularly semiconductors, in East and North-East Asia, however, have performed below the regional average.

Moreover, 2021 has been characterized by uneven growth between the first and second halves of the year. During the first half, there was robust growth in trade, driven by the speedy progress of vaccination campaigns in the developed world, especially in the European Union and the United States. The second half saw the rise of the COVID-19 Delta-variant, compelling many East and South-East Asian economies to impose lockdown measures, disrupting global value chains and hampering trade growth in the region.

Zooming in, supply-chain disruptions are intertwined with disruptions to both merchandise trade production and to complementary services such as transport and logistics. On the one hand, as the Asia-Pacific region became the new global hotspot for COVID-19, many countries were forced to bring back lockdown measures affecting manufactured goods production. Regional hubs such as China, Malaysia, Thailand and Viet Nam all imposed restrictions to curb recent outbreaks. Additionally, lockdown restrictions in important logistics hubs (especially in China) have limited maritime operations globally, causing a backlog in ports and limiting the supply of necessary inputs. Although countries did make progress in trade facilitation and digitalization during the pandemic, differing sanitary protocols and vaccine recognition schemes across countries have further delayed the process of incoming international vessels.

In 2022, with the gradual resolution of supply-side bottlenecks and the easing of expansionary fiscal policies in developed economies, inflationary pressures are expected to ease. Merchandise trade is expected to continue recovering, albeit more moderately than in 2021: regional nominal exports and imports will grow by 5.5 per cent and 6.8 per cent, respectively, and by 4.1 per cent and 5.2 per cent in real terms.

However, downside pressures to a robust economic recovery continue to exist. In particular, the slow rollout of COVID-19 vaccines in developing economies – especially in lower-middle and low-income countries – increased global financial instability. This, as well as the scaling back of fiscal stimulus, are among the most immediate threats to global output growth. Developing economies are especially exposed to these downside risks as they often face sovereign debt problems and are battling COVID-19 waves with generally lower vaccination rates and much less fiscal space.

Accordingly, if the region is to witness a sustained recovery in merchandise trade, vaccine rollout and deployment must become more widespread. In particular, it would be important to address (1) concentration of production and vaccine nationalism, (2) logistics, transportation and deployment, (3) varying regulatory requirements, and (4) vaccine hierarchies, as the main challenges to vaccine supply chains.

From ‘just-in-time’ to ‘just-in-case’ – exploring new models of global production

In the medium-to-long term, due to supply-chain disruptions and the use of trade for geopolitical leverage, firms are altering their investment decisions and business models to ensure resilience and reliability. Thus far, diversification of supply sources appears to be the preferred strategy by firms for hedging against single-supplier dependency. In the Asia-Pacific region, a ‘China+1’ strategy whereby existing supply-chains are replicated in other countries – often in South and South-East Asia – is increasingly evident. Other noteworthy factors that lie at the heart of global value chain restructuring include climate change and green transition, calling for climate-smarter trade and investment policies.

For more details on trends related to trade in goods and economy-level forecasts in Asia and the Pacific, please refer to the Asia-Pacific Trade and Investment Trends Report 2021/22.

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Witada Anukoonwattaka
Economic Affairs Officer
Pedro Romao
Trade, Investment & Innovation +66 2 288-1234 [email protected]