The last two years brought some unique challenges and export risks to businesses. The COVID pandemic has severely disrupted supply chains and international trade. As a result, many goods were not available anymore for shipping or significantly increased in price. That, combined with massive government stimulus packages, led to almost double-digit inflation in many developed and emerging economies.
But it was not only COVID that troubled supply chains this year. Other developments have also contributed to global trade bottlenecks. What are these developments?
Protectionism and trade wars
Protectionism had already been on the rise before the COVID pandemic. Especially The US and China are competing for global leadership in trade, technology, and geopolitical power. Under the Trump administration, The US has begun to install tariffs and other non-tariff trade barriers with China and the European Union. China and the EU have retaliated with their tariffs. This worsening global trade climate has made it more difficult for businesses to engage in global trade.
China's Zero-COVID policy
In response to serious COVID virus outbreaks, the Chinese government has implemented the so-called Zero-COVID policy. Entire cities have been locked down, bringing economic activity to a complete halt. Since China is the second biggest economy in the world and a major trade partner to most developed and emerging economies, the reduced production capacity of Chinese suppliers has led to severe supply chain disruptions worldwide.
The war in Ukraine
Ukraine and Russia are among the most important commodity suppliers worldwide. Russia supplies energy to Europe and exports minerals, metals, and other crucial commodities. Ukraine is one of the world's largest wheat exporters. After Russia attacked Ukraine, western sanctions disrupted energy markets. Prices for gas and oil have increased significantly. In the worst case, energy shortage in Europe could lead to blackouts and halt production in many industries. A lack of wheat supply has resulted in rising food prices worldwide and caused a food crisis in some developing countries.
Outlook for the rest of 2022
Supply chains remain disrupted, but there are signs of relief. Energy prices have come down as Europe finds alternative suppliers. Vaccination rates in China are increasing, and the mortality rate of the omicron variant of the COVID virus is lower than expected. It could be that the Chinese government will slowly open up the economy within the next two to three months. Although there is no end to the war in Ukraine, and the war even seems to be escalating, there is still hope that there will be a cease-fire at one point.
Rising interest rates will likely reduce global economic activity and cause a global recession. That means demand goes down, reducing pressure on global supply chains. There will likely be more economic pain ahead in 2022, but the bright side is that the economy is set to recover either next year or the year after.
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