Supply chains are a mess. So how come trade is booming?

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ING Groep NV updates

World trade, we are told, is booming.

After slumping in dramatic fashion during the second quarter of 2020, export volumes have since soared to the extent that, by September, they were above levels seen before pandemic began to impact the global economy and are now at an all-time high.

Line chart of Merchandise world trade volumes, seasonally adjusted showing Export levels are now above their pre-pandemic peak

Yet how can this be the case when at the same time we read daily of global supply chain snafus from shuttered Chinese ports and seemingly chronic shortages of semiconductor chips?

On the face of it, it seems perplexing that we’re heralding an export boom at the same time as economists in manufacturing powerhouses such as Germany are warning the problems with sourcing parts are weighing on the GDP numbers. Here’s Carsten Brzeski of ING:

While in recent days financial markets showed growing concerns about the Delta variant and its potential to dent the global recovery, we actually see supply chain frictions and not the coronavirus as the biggest risk for the German economy in the second half of the year.

We weren’t sure what the answer was, but data out this week from the Organisation for Economic Cooperation and Development on merchandise trade during the second quarter is a big clue.

According to the OECD, Australia’s exports increased 10 per cent between the first and second quarter. Brazilian exports shot up by 29.4 per cent. Russian exports grew by a whopping 30.7 per cent.

What do those countries have in common? They are all major commodities exporters benefitting from a triple whammy of “increasing prices, limited global supply and strong demand.”

Growth in exports from manufacturing powerhouses, meanwhile, has been more staid. Germany, for instance, only saw export growth of 1.3 per cent, while in China volumes shrank by 2.5 per cent.

We don’t want to take anything away from the remarkable job many of the world’s makers have done in rejigging their operations in the face of the pandemic. When it comes to the global recovery, there’s a lot to thank them for.

But an under-appreciated reason why we’ve seen such a remarkable comeback in trade is down to the commodities boom.

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