Economic Impact of Covid-19 (Part 6: Foreign Trade)

By Art Jimenez

There are a number of ways foreign currency comes into our economic system. Two of them, tourism and OFW remittances and how Covid-19 has impacted them, were earlier taken up in this series.

Another major mechanism that directly involves foreign currency is foreign trade. How has community quarantine here and abroad affected this vital money source of our economy?

But first, a few basics for those who have not taken Economics 101 or have forgotten much of it. The rest who remember can jump straight to the numbers.

Foreign or international trade consists of two sides: exports and imports. Companies export when they sell their products abroad. Their opposites are importers who buy products from foreign suppliers. Foreign trade is paid for in a currency strong enough to be accepted in most parts of the world, like the United States dollar (USD or $), the European Union euro, and the Japanese yen.

Common sense dictates a company should earn more from exports and spend less for imports. If this happens, the company enjoys a “trade surplus” or suffers a “trade deficit” if the opposite occurs. The same terms apply on the macroeconomic or national level. The level signifies how vigorous or anemic a country’s foreign trade sector is.

Philippine exports grew by a minimal 1.4 percent from $69.3 billion in 2018 to $70.3 billion in 2019. On the other hand, 2018 imports of $112.8 billion showed a decline of 4.8 percent year-on-year. Total trade of $177.7 billion in 2019 slid $4.5 billion or 2.5 percent from its $182.2 billion-level. Balance of trade, year-on-year displayed a lower negative $37.1 billion.

Historically, our export performance is not that spectacular given our limited manufacturing and, therefore exporting, capability. In fact, any increase in our exports are usually in one-digit figures. One main reason is 60 percent of all Philippine exporters are MSMEs (Micro, Small, and Medium Enterprises), according to the DTI.

Alternatively, the more we import could signify heightened buyer demand and productivity. Unfortunately, our 2019 imports instead slowed by 4.8 percent over the 2018 figure, which means a contraction of economic activity.

We find our foreign trade performance last year as lackadaisical. But wait ‘til you see the figures that follow.

Covid-19 originated in China on December31, 2019. By March 2020, it began to widely spread and forced governments to institute different levels of quarantine to limit the spread of the virus.

For March 2020 alone, our export sales dropped by a hefty 24.9 percent year-on-year to $4.5 billion while imports declined at a faster rate of 28.6 percent to $6.9 billion. The resulting trade deficit was $2.4 billion.

Total trade totaled $11.4 billion. In a statement, the National Economic and Development Authority (NEDA) said the combined value of exports and imports in March 2020 was the lowest in two years.

NEDA also said the Covid-19-inspired breaks in the manufacturing supply chains adversely affected trade flows. Here at home, the supply chain was further damaged by the port congestion caused by marine vessels (both already berthed and new arrivals) that could not depart. Almost all of these ships had cargoes. Shippers and shipping companies breathed a sigh of relief when the port authorities allowed them to move out to decongest the ports.

Acting NEDA head and Socioeconomic Planning Secretary Karl Chua was quoted as saying our foreign trade “may recover in 2021, but this will depend on how fast we can contain the spread of COVID-19 and mitigate its economic impact through government policies to support affected industries and workers.”

-To be Continued-