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Trading blows

The growing queue of ships sitting idle in the Suez Canal illustrates the vulnerability of the interconnected global economy to trade disruptions. Tensions between the UK and the EU over vaccine exports are a reminder that cooperation is vital, especially in a crisis.

Newsletter from 26 March 2021

This week’s headlines remind us just how connected the world is – and the importance of cooperation across countries to tackle global challenges. Even as UK coronavirus cases fall and vaccination numbers rise, a ‘third wave’ of the pandemic sweeping through Europe threatens the return of international travel. And despite encouraging progress with the rollout, tension between the UK and the European Union (EU) over restrictions on vaccine exports from the bloc risks jeopardising the government’s roadmap out of lockdown.

A 220,000 tonne tanker, stranded diagonally across the Suez Canal, is a striking image of international trade ground to a halt. With nearly a third of global container volumes passing through the canal each day, carrying everything from fuel to consumer goods, this incident reveals the fragility of globalised supply chains. Disruptions to trade – whether resulting from government policy or in the form of blocked shipping routes – can have momentous economic implications.

Teething problems?

The UK’s first batch of trade data since leaving the EU, published earlier this month, revealed the early damage done to the flow of goods by Brexit. The numbers show substantial declines in shipments to and from the EU, with exports falling by 38% and imports by 18%.

This week, Manuel Tong Koecklin (NIESR) investigated the effects of both Brexit and the pandemic on the products that UK firms trade. Depending on economic conditions, firms choose what and how much to export, and to which foreign markets they sell. In Manuel’s view, looking at trade decisions at firm level helps to determine the overall impact that dual shocks can have.

Disentangling the effects of Brexit and Covid-19 is not easy. As Manuel highlights, industries such as commercial transport, electronics and textiles did not experience a dramatic fall in exports during the pandemic but may be at acutely at risk post-Brexit. In contrast, printed publications, metal, and food – while resilient to the Brexit-shock – have suffered greatly during Covid-19.

Nevertheless, going beyond the headline trade data and focusing on firm-level behaviour may help researchers identify which effects are caused by the pandemic and which may be symptoms of new trade frictions.

The impact of Brexit on trade is also being felt within the devolved nations of the UK. In Thursday’s piece, Craig Johnson, Jack Price and Helen Tilley (Wales Centre for Public Policy) explored how the EU-UK Trade and Cooperation Agreement is affecting the Welsh economy. The EU is the most important trading partner for the UK and Wales, accounting for 43% of total UK exports and 52% of imports in 2019. As a result, changes brought about by Brexit present a number of concerns for the Welsh Government.

The authors find that the new trading arrangements have led to big disruptions for many Welsh businesses, particularly in sectors that previously depended on seamless border processes – such as agriculture, cars and aerospace. Having previous been able to deliver their goods without delay, Welsh exporters are now having to fill in customs declarations that detail their catch as well as health certificates for export clearance. This mirrors problems faced by the Scottish fishing industry – a topic explored in an earlier Economics Observatory article by Graeme Roy and Stuart McIntyre.

Craig, Jack and Helen argue that longer-term support will be needed to increase the resilience of key economic sectors. This must involve encouraging collaboration, promoting research and development, and targeting state aid to improve sectors’ competitiveness where possible.

Sick and tired

When facing a global pandemic, we should also look around the world for solutions. A piece from Lotanna Emediegwu and Emmanuel Oluwole Oni does just this by examining how the lessons learned by countries in sub-Saharan Africa during the Ebola pandemic may have affected responses to Covid-19.

The authors find that the region has been less affected by coronavirus than many developed countries both in terms of cases and deaths (see Figure 1). African countries that had previously experienced Ebola outbreaks were swifter and more comprehensive in their responses to Covid-19. This may have been driven by differences in knowledge of the two diseases at the time they struck. As many European leaders downplayed the severity of the crisis in early 2020, many African countries quickly implemented precautionary measures to control the spread of the disease.

Figure 1: Daily new confirmed Covid-19 cases per million people

Source: Roser et al (2020)

But as Lotanna and Emmanuel explain, although lessons from Ebola helped African policy-makers mitigate the worst of the public health crisis, the economic damage to the region will be considerable.

Back in the UK, Covid-19 has dominated the headlines for over a year now, with reports on cases, hospitalisations and deaths at the centre of government press briefings. But how has the virus affected sickness absences from work?

Marco Ercolani (University of Birmingham) has unpicked the latest data, which show, perhaps surprisingly, that there has not been an overall increase in working time lost to the pandemic (see Figure 2).

Figure 2: UK workers’ sick days, total days and days per worker

Source: Sickness absence in the UK labour market: 2018, ONS

But as ever, the economy-wide numbers hide vital facts. By digging deeper Marco’s article shows that sickness absence has increased among key workers and other occupations that put staff in direct contact with the public. As the UK marked the anniversary of the first lockdown on Tuesday with a minute’s silence, this latest data piece provides further evidence of the disproportionate strain placed on the healthcare sector. While many people have avoided sickness during lockdown, frontline workers enjoyed no such respite.

And as Marco warns, the two pandemic peaks in 2020 had a combined magnitude in terms of cases and deaths equivalent to those experienced in just the first quarter of 2021. In terms of sickness, this year may yet present an even more acute situation if the pandemic does not soon subside.

A route out?

As the flotilla of tugboats and dredgers in the Suez Canal works to dislodge the stranded container ship, business as usual may resume soon – at least for the freight transport in and out of the Mediterranean. Similarly, from Monday, a small slice of our social lives returns as we’re permitted to meet up to five friends or family members outside. But for the larger struggle against Covid-19 and for the UK’s trading relationships after Brexit,  the route out is less clear.

Lessons from history, from new data and across international borders are all important tools policy-makers can use to plot their course. At the Economics Observatory, we aim to help build up these resources by drawing insights from as many settings as we can.

Author: Charlie Meyrick
Photo by Kees Torn for Flickr
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