The initial reaction to the COVID-19 pandemic was one of uniform unease: markets dropped, consumer confidence plummeted, and the world faced uncertainty in terms of demand for goods and services. Not all of these issues have hit the world economy uniformly, however. Some ramifications have come to pass as expected, but others less so.
There are several reasons why the COVID-19 story was less than uniform between major players in the global economy. Lockdown restrictions, consumer behavior and monetary policies all led to outcomes that varied between regions, countries and industries. Unpacking how the pandemic has shaped the global economy in the early days of the virus is a complex, multifaceted process.
COVID-19's Impact is Not Created Equal
Measuring the global economic impacts of COVID-19 is less than straightforward. The severity of the virus’ spread in certain countries, divergent public health policies aimed at “flattening the curve,” and a variety of fiscal stimulus packages all led to unique regional or even state-level economic impacts. Some businesses flourished under quarantine and lockdown measures, while others floundered.
Although the state of the global economy is still in flux, and headlines trumpet a mass decline in revenue for several business sectors, it's important to understand that the impact of the global pandemic has not affected all industries equally.
On-demand services have soared as customers adapted to life during lockdown. Entertainment services that provided online content saw a pronounced spike in interest and stock price, as many people around the world were confined to their homes and looking for distractions to help pass the time. The same holds true for delivery services: food ordering platforms made it easier than ever to purchase online and receive contactless orders right to a customer’s doorstep.
On the flip-side, businesses that rely on in-person customer experiences have not fared as well. Movie theaters, entertainment destinations and cruise lines have had to either halt operation outright, re-book existing reservations or significantly modify their operations—often at a considerable cost.
Small businesses have borne the brunt of COVID-19's detrimental economic effects, particularly if they were not set up with a robust e-commerce system in place prior to the pandemic. Those that scaled up e-commerce operations quickly after lockdown orders were put in place have fared somewhat better, but the long-term effects have still yet to be seen.
The manufacturing sector shows mixed signals in terms of economic impact. Businesses that make personal protective equipment (PPE), plexiglass shields, medical supplies or sanitization products have seen a boon in revenue. Nearly every sector of the manufacturing sector suffered from supply chain disruptions, however, and signs of life are only just beginning to emerge for the industry in general.
The Effects of Supply Chain Disruption
The pandemic's initial outbreak in China had a cascading effect throughout much of the global supply chain. Beijing ordered large manufacturing hubs to close in an attempt to stop the spread of COVID-19, which in turn left orders unfulfilled and products not sent to global vendors. This created a domino effect throughout the global supply chain, making it impossible for many companies to fulfill orders.
Global supply chain issues were not the only sources of stress for businesses and consumers. Domestic supply chain problems, particularly with regard to toilet paper, masks and cleaning products, left shelves empty in a period of outsized demand. Suppliers scrambled to increase production, but many were flat-footed and took weeks to increase output. Other domestic manufacturers also suffered from decreased output due to shutdown orders, which closed all but the most essential businesses in most states.
The Impacts on Manufacturing
Supply chain issues were not the only major disruption COVID-19 caused for industry. Manufacturing also suffered as major cities shut down and plants closed for indeterminate periods of time. This hit global manufacturing hard, and for an extended period of time, as the virus spread.
When Chinese manufacturers were able to either remain open or resume their operations after being given the green light from public health officials, many pivoted toward making PPE for domestic and international use. Even as the country began fulfilling orders as usual again, many global companies began to worry about their potential overreliance on China, which accounts for 35% of the world’s manufacturing.
Domestic manufacturing slowed down to a crawl as the virus spread in the United States and Europe. Just as Chinese production took a hit in the months before the pandemic took roots elsewhere, American and European coronavirus containment measures created a domino effect that soon curtailed manufacturing closer to home. Except, in this case, global manufacturers who source materials from China had to contend with additional challenges in the form of diminished goods coming from Asian suppliers and domestic policies that prompted the closure of most non-essential manufacturers.
As both manufacturing and supply chains suffered, so too did international trade. Combating the spread of COVID-19 meant many borders closed, shipments stuck at ports, and fewer orders fulfilled. International trade disputes that marked the pre-COVID global economy already created a disadvantageous environment. Shuttering factories meant fewer products hitting ports, and less manufacturing happening across the world. Plus, the stay-at-home orders executed by most countries had a chilling effect on consumer spending.
The tariff-laden landscape of pre-COVID international trade may be up in the air as the global economy begins to ramp back up to speed. As the United States-Mexico-Canada Agreement goes into effect, its impact on North American trade in the wake of the pandemic will be worth watching. Early headlines suggest that Washington may press on with existing—and even new—tariffs on goods from the European Union.
The COVID-19 pandemic hit industries and sectors in different ways. Some have benefitted, while others have had to reconsider their entire business models. Underlying trends in manufacturing, supply chain logistics, and trade uniformly suffered. Forecasting what comes next will be a challenge for most economists and trade experts.