Last reviewed 14 August 2020
Commenting on a wide-ranging report on the impact of Covid-19 on international trade by the International Trade Committee, its chairman said that the Department for International Trade (DIT) would need to provide the right support to UK businesses as they rebuild as well as to lead international efforts to respond to the disease through coordinated trade policy. “Their successes and failures will affect us all”, he said.
The report, published on 29 July, also considered the effectiveness of the UK and international response to the pandemic and proposals to ensure supply-chain resilience. The full report can be found here https://committees.parliament.uk/publications/2177/documents/20125/default/.
The outbreak of the Covid-19 pandemic had an immediate and severe impact on international economic output, trade and investment and this was reflected in the UK across both manufacturing and services sectors.
UK trade in essential goods
The Committee found that supply chains in critical sectors such as pharmaceuticals, medical supplies and food have largely held up during the pandemic, despite spikes in demand, disruption to production and freight and export bans in some countries.
UK manufacturing and services sectors
The pandemic has had a significant impact on manufacturing with the flow of raw materials, parts and sub-assemblies seriously impeded and the ability to sell finished products greatly curtailed. The declining activity was made worse by disruption to freight transport and the imposition of border controls in Europe. UK trade in services has also been adversely affected. This varies considerably between sectors according to the extent to which they are dependent on travel and their ability to provide services digitally.
UK Government response
British businesses face trade finance challenges due to goods being delayed in transit tying up cash flow, customers requesting extended payment terms and increased borrowing costs due to a lack of market liquidity. The report welcomes efforts by UK Export Finance to support UK businesses trading overseas and the rolling-out of ‘bounce-back’ schemes for key sectors, including specific support for SMEs. Export promotion will also play a key role in helping businesses recover. The pandemic has accelerated the shift to online based trade and the UK Government should help exporters maximise the opportunities of digital trade.
The global response
International trade is at risk from rising protectionism and movement away from a rules-based trading system. The global response on trade during the pandemic has been led by the G20 and the World Trade Organisation (WTO) but the Committee heard evidence of a lack of leadership compared with the 2008-09 financial crisis. Some governments have imposed unilateral export controls on medical goods, pharmaceuticals and agri-food products and some have implemented import reforms such as reduced tariffs on essential goods. The Committee urges the Government to act at an international level to ensure that trade-disrupting measures put in place during the pandemic do not become permanent.
Ensuring future supply-chain resilience
The Committee heard that an issue arising globally across a wide range of sectors during the pandemic is that of perceived vulnerabilities in supply chains. There is an argument that there will now have to be a fundamental shift towards localisation of supply chains. DIT is looking at vulnerabilities in the supply chains for essential goods but indicated that onshoring is not being proposed as part of this. A number of alternatives to onshoring are proposed.
Foreign Direct Investment
The impact of the pandemic on UK inward investment is likely to be significant. The Committee calls on the DIT to increase its advice, support and assistance to inward investors to help them deal with current circumstances and to set out how it will strike a balance between screening investment for security concerns and promoting inward investment.