WB: Lockdowns abroad lead to drop in Philippines trade

MANILA, Philippines — The imposition of domestic lockdowns at the height of the pandemic in 2020 did not cause a decline in trade, but restrictions from trading partners did, according to the World Bank.

In a report, the Washington-based multilateral lender analyzed how international trade on various margins was affected by the Philippines’ own lockdown policies and those of its trading partners.

Authors Guillermo Arenas, Socrates Majune and Angella Montfaucon found out that domestic lockdown measures did not affect international trade and that external lockdowns impacted both exports and imports.

“Our results reveal that domestic lockdown policies did not affect international trade in the Philippines. Instead exports and imports plunged due to external lockdowns,” they said.

Philippine exports to countries that imposed lockdowns dropped by a monthly average of seven percent and 13 percent in terms of value and quantity, respectively, reflecting a drop in foreign demand.

On the other hand, imports from countries that imposed lockdowns shrank by a monthly average of 56 percent in value and 78 percent in volume, indicating a drop in domestic demand and supply-side disruptions on imported inputs.

The researchers emphasized that restrictions on internal movements and international travel controls of trading partners were responsible for the drop in exports.

The slump in imports, meanwhile, was due to workplace closures, stay-at-home requirements, restrictions on internal movement, and international travel controls by trading partners, they said.

The World Bank said intermediate goods were the key driver of the drop in  imports following foreign lockdowns, reflecting supply disruptions in backward global value chain participation.

Total exports of goods and services in the Philippines experienced the largest decline in four decades in 2020, declining by nearly 50 percent, while imports contracted by over 65 percent in April 2020.

In fact, the combined drop in exports of goods and services was larger than in the Asian financial crisis in 1998 and the global financial crisis in 2008 and 2009.

In 2020, the output in the Philippines also exceeded that of the 2008 to 2009 global financial crisis and nearby countries of China, Vietnam, Indonesia, Thailand and Malaysia.

“Further analysis revealed that lockdowns in the Philippines’ smaller trade partners were key in driving the decline in exports to those countries while larger trading partners were responsible for the fall in imports,” the researchers said.

They noted that since lockdowns affected entire countries and regions, domestic production or regionally based supply chains would not have prevented the disruption to production systems.

“However, when hit by a supply shock, relying more on imported inputs with a diverse set of source countries can provide a buffer compared to relying primarily on domestic inputs,” they said.