Bangladesh Textile Firms Look to Asian Markets to Recover From Covid-19 Crisis

The Covid-19 pandemic has cast a pall over clothing retail markets in the U.S. and Europe. With iconic firms like Brooks Brothers and JC Penney battling bankruptcy, Asian textile manufacturers have lost billions of dollars in orders.

That’s hit Bangladesh’s garment sector, the world’s second largest, particularly hard. The country is heavily dependent on the textile industry, which employs four million people and generates around 85% of export earnings.

The crisis, which forced over 150 factories to temporarily close, has prompted manufacturers to look for new markets, particularly in Asia. That’s where population growth and economic development are creating tens of millions of new middle class consumers.

In the first five months of 2020, with exports to almost every country plummeting, South Korea ramped up imports from Bangladesh 9.4% to $155 million, according to Trade Data Monitor, the world’s premier source of export and import statistics. By comparison, textile shipments to the U.S. fell 12.2% to $2.2 billion.

While global textile trade in 2020 has been slipping compared to the year before, key Asian countries had been steadily boosting purchases from Bangladesh, a trend that should resume once the pandemic ends. South Korean imports of textiles from Bangladesh increased to $335.1 million in 2019 from $170.7 million in 2014, while Chinese imports rose to $590 million in 2019 from $335 million in 2014.

And last year, manufacturers reported an increase in interest from U.S. buyers seeking protection from the U.S.-China trade war. Since two factory accidents in 2012 and 2013 killed almost 1,000 workers in Bangladesh, U.S. customers had shied away.

The problem now is that Covid-19 is tearing apart economies and demand in ways that have nothing to do with taste, culture or politics. Bangladesh, like everywhere else, will have to get back on its feet, and, almost certainly, will need textiles to do that.

From the 16th to the 18th centuries, Bengal, a large region on the Indian subcontinent including modern-day Bangladesh, was a significant center of cotton and silk production, much of it going to rich markets in Europe. The East India Company colonized Bengal in 1757, which led to deindustrialization. Raw cotton was shipped to England for transformation into textiles, which were then exported to Bengal.

In the 1980s, after enduring a war for independence and a devasting famine in the 1970s, Bangladesh denationalized hundreds of textile manufacturers, set up export processing zones and invited foreign investors and advisers, especially from the U.S. The result was a flurry of contracts with designers and retailers in the U.S. and Europe, making “Made in Bangladesh” a common tag on clothes around the world. Bangladesh’s accession to the World Trade Organization in 1995 solidified its place as a key player in global trade.

In 2019, Bangladesh exported $34.7 billion of textiles, second in the world only to China with $138 billion, according to TDM data. Vietnam was third with $31.4 billion. Germany was fourth with around $23.9 billion.

To be sure, the West is still where the buyers are. The U.S. is the world’s top importer of garments, shipping in $84.7 billion in 2019, ahead of Germany, with $38.5 billion, and Japan, with $28 billion.

But nobody knows how bad the impact of Covid-19 will be. In the first five months of 2020, U.S. garment imports were down 25.6% to $24.9 billion. Imports from China fell 42% to $5.4 billion.

And, in the long run, the demographics don’t lie. Bangladesh, with over 160 million people, is the world’s eighth most populous country. Of the top five nations in the world by population, four are in Asia. Bangladesh has some clothes to sell them.

China’s June Trade Rebound Offers Hope, But Can’t Ease Global Economic Fears

As the first country to suffer a Covid-19 lockdown China, the world’s top exporter and trading power, has been under scrutiny. Now it offers hope: In June, Chinese monthly imports increased 2.7% year-on-year to $167.2 billion, and exports rose 0.6% to $213.6 billion, according to Trade Data Monitor, the world’s top source of export and import statistics.

With imports rising faster than exports, China’s trade surplus declined to $46.4 billion in June from $62.9 billion in May, another signal that Beijing’s mighty export machine may have to increasingly rely on the country’s own market of 1.4 billion people.

The June rebound flipped a dismal trend: In May, exports had declined 3.3% year-on-year, and imports 16.7%. And China’s buying resurgence was broad-based: It ramped up imports of meat (+74% year-on-year), cereals (+78.5%), iron ore (+17.4%), soybeans (+73.4%), steel products (+34%), and integrated circuits (+18.6%), according to TDM.

These strong import numbers suggest that China’s sprawling manufacturing machine is kicking back into gear after weathering a long season of Covid shutdowns, which led to China’s GDP declining 6.8% in the first quarter, its worst outcome since the 1960s. The buying suggests that Chinese factories will soon have recharged pipelines of goods to sell and that big Chinese industrial and agricultural buyers are now stocking up on essential commodities.

The question is who’s going to buy what the Chinese are making. The canary in the coal mine is the lack of consumer spending, especially in the U.S. and Europe, as economies continue to roil from lockdowns. The International Monetary Fund projects a global GDP contraction of 4.9% in 2020.

In China’s June export results, there are signs of that demand unease. Chinese footwear exports fell 28.4% to $2.9 billion, bags and containers shipments declined 31.1% to $1.7 billion, steel product exports shrank 26.4% to $3.4 billion, and automobile spare parts shipments dropped 26.3% to $3.7 billion, according to TDM.

There are sectors of resiliency, particularly in medical care, and in the technology people need when they’re stuck at home. Shipments of mobile phones rose 29.8% to $9.2 billion, and exports of medical devices increased 100.2% to $2.1 billion.

And China made good on a promise to hike purchases of U.S. soybeans. Shipments from the U.S. increased 10.8% to $10.4 billion, beating a 1.5% rise in exports to the U.S. to $39.8 billion. By comparison, Chinese exports to the European Union increased 10.6%. While Beijing seeks new markets in Europe, the long-term trend with the U.S. still points towards a diminishing of that essential trade relationship: In the first six months of 2020, Chinese exports to the U.S. declined 11.1% to $177.6 billion, while imports fell 4.7% to $56.4 billion.

Above all, China’s June trade numbers reinforce the most important trend in global trade right now: Around the world, economies are being carried by robust increases in the trade of a catalog of specific sectors, such as communications technology, medical supplies, pharmaceuticals, gold, and commodities like soybeans, that are obscuring the depth of economic damage.

Once countries have enough medical supplies, demand for gold ebbs, and countries and companies get the commodity stockpiles they need, Chinese exports are almost certain to shrink again without Western consumers buying shoes, clothes, furniture, and other durables.

While China’s promising June trade numbers signals that the world economy is far from dead, what the data can’t do is tell us what’s coming if consumer demand doesn’t get up off the floor.

Saudi Arabia Bets Chemicals and Plastics Will Rebound After Covid

As Saudi Arabia battles to prop up oil and gas markets amidst the worst global economic downturn in decades, it’s facing renewed challenges to its mission of diversifying exports away from the traditional petroleum pillar.

Crown Prince Mohammed bin Salman has embarked on the most serious effort since the desert kingdom’s founding in 1932 to build an economy that can prosper beyond a finite fossil fuel resource. And while the global Covid-19 pandemic has dented the growth of that so-called Saudi Vision 2030 program, an analysis of trade statistics suggests the country has laid a foundation for a more sustainable economic future.

To be sure, there’s no way of minimizing just how badly the pandemic is damaging global trade. In the first quarter of 2020, Saudi Arabian non-petroleum exports shrank 13.6% year-on-year to $12.7 billion. “The kingdom has not faced such a crisis—neither healthwise nor financially—for decades,” Finance Minister Mohammed al-Jadaan said in a recent interview. And, in the last few years, Saudi Arabia has struggled to manage tense relationships with the U.S., Russia and other key trading partners.

At the same time, it’s persisted in efforts to integrate with fellow members of the G20 club of the world’s richest economies. An analysis of trade statistics suggests Saudi Arabia has built a more diversified export base. The kingdom’s non-petroleum exports increased to $57.1 billion in 2019 from $19 billion in 2005, the year it joined the World Trade Organization, according to Trade Data Monitor, the world’s top source of trade statistics.

As Prince Mohammed has slashed subsidies and tried to stimulate investment in new sectors like tourism, with mixed success, he’s also continued to push investment in petroleum-related industries, plowing tens of billions of dollars into new petrochemical projects.

In 2019, Saudi Arabia registered exports of over a billion dollars in 11 separate trade categories, topped by plastics ($18.8 billion) and organic chemicals ($12.2 billion), and including ships and boats ($2.3 billion), aluminum ($2.1 billion) and fertilizers ($1.1 billion).

Saudi Arabia Top Non-Petroleum Exports; Billions USD, 2005-2019; Plastics, Organic Chemicals, Inorganic Chemicals, Aluminum, Machinery; Source: General Authority for Statistics via Trade Data Monitor LLC; July 8, 2020

The challenge for Saudi officials has long been to use the oil and gas industry as a base to expand downstream into the rest of the industrial economy. Why not make plastics, chemicals and all the other petroleum-derived industries in the country itself, instead of shipping it to other countries for processing?

That’s why the country has aggressively recruited chemicals giants like Germany’s BASF, France’s SNF, Anglo-Dutch Shell and Japanese Mitsui & Co, and industrial firms like aluminum maker Alcoa, a joint venture partner on a massive complex that includes a bauxite mine, smelter and rolling mill.

While Saudi Arabia has struggled to create industries that rival petroleum’s in size, one thing it has going for it is its network of shipping customers all over the world. In 2019, it sent over a billion dollars of non-petroleum product to 12 different countries, led by China ($9.3 billion), UAE ($7.6 billion), India ($3.8 billion), Singapore ($3.5 billion), and Turkey ($2.1 billion). Its biggest market, China, bought $5.5 billion of organic chemicals and $3 billion of plastics in 2019, key ingredients needed to build what will eventually be the world’s biggest economy. In the first fourth months of 2020, a rare bright spot was the shipment of $248.5 million of precious metals and jewelry to Switzerland, a 110% increase, according to TDM data.

Not surprisingly, China is Saudi Arabia’s top source of imports, shipping $25.2 billion worth in 2019. That’s mostly consumer goods for Saudi’s 34 million inhabitants, including $7.4 billion of electronics, $1.4 billion of ships and boats, and $1.2 billion of automotive vehicles. The second biggest exporter of goods to Saudi Arabia is the U.S., with $15.4 billion worth in 2019, including a wide variety of goods from cars to pharmaceuticals.

Oil, it seems clear, isn’t going away any time soon. Saudi Arabia controls over 15% of the world’s proven petroleum reserves, and oil and gas make up half of its gross domestic product, and two-thirds of export revenues. Aramco, which controls Saudi production, turned a eye-popping profit of $88.2 billion in 2019.

Despite the curse of so much uncertainty, using the raw material you have in hand to make a diverse cluster of industrial goods the rest of the world needs – and will buy as the economy recovers – seems like a good bet.

Chinese Dominance of Clothing Trade Dented by Covid-19, Trade War

The Covid-19 pandemic has ravaged the global clothing industry. The question is how it will emerge when the world economy goes back to normal sometime this year or next. When will consumers be ready to shop for clothes with the same abandon as this past decade? And when they do, will they buy from the same retailers purchasing from the same supply chains? There are many unknows, but already, it seems certain that other Asian nations will chip away at Chinese dominance of the sector.

As the world’s big consumer markets put away their wallets, they are slashing imports of less-essential items, including new clothing. Big brick European and American retailers have been cancelling orders en masse as they shut shop. JC Penney, one of America’s biggest clothing retailers, even filed for bankruptcy. Online sellers are faring a bit better but are coping with slashes in demand as people have less money in their pockets to spend.

The US, the world’s biggest single buyer, cut imports of apparel 18.9%, to $21.7 billion in the first four months of 2020, according to Trade Data Monitor, the world’s premier source of trade statistics. That is happening pretty much everywhere. Japan reduced imports 8.1% to $8.3 billion.

The loss of appetite is damaging exporters. Shipments from virtually every significant apparel manufactured have declined sharply so far in 2020, according to TDM. In the first quarter of 2020, Chinese garment exports fell 21.1% to $21.3 billion. Turkey: down 7.4% to $3.7 billion. Indonesia: down 6.7% to 2 billion. A blood bath for a manufacturing sector that employs millions and underpins the fledgling prosperity of many developing countries.

The pain is potentially massive and widespread. As factories closed and retailers cancelled or suspended contracts this year because of the pandemic, often invoking force majeure, the top Asian producers, including China, Bangladesh and Pakistan, published a statement asking importers to “carefully consider all potential impacts on workers, small businesses in the supply chain when taking significant purchasing decisions” and to “honour the terms of purchasing contracts, fulfil obligations therein, and not re-negotiate price or payment terms.”

China exports roughly one-third of all the apparel exports in the world. Since the 1980s, apparel exports have been the pillar of the country’s global export apparatus. By 2000, the year before China joined the World Trade Organization, it was already the world’s top exporter of garments, with $32.3 billion shipped all over the world. Its WTO membership and joining the WTO’s special tariff agreement on textiles in 2005 opened the floodgates for Chinese exports to really boom, even as it expanded its economy into the further reaches of heavy industry and advanced technology. In 2019, it exported a whopping $138 billion worth, far ahead of second-place Germany at $23.8 billion.

Its thousands of factories are not suddenly going to close, because of Covid-19 or any other reason, but they are almost certain to see their edge whittled away in favour of other Asian competitors. Bangladesh, for example, in 2019 exported $34.7 billion worth of apparel, up from $33.3 billion in 2018 and $30.3 billion in 2017. Vietnam shipped $31.4 billion worth, up from $28.8 billion in 2018 and $25.6 billion in 2017, according to TDM.

The Covid-19 pandemic comes on top of several problems for China. Wages in the country are increasing, boosting the incentive to switch production to Bangladesh, Vietnam, Cambodia, and India. And the trade war with the US has motivated retailers to move more sources of supply to those countries to minimize risk.

US Top Import Sources, Apparel (HS 61, 62); Billions USD; Jan-Apr 2019, Jan-Apr 2020; China, Vietnam, Bangladesh, Indonesia, India; Source: US Census Bureau via Trade Data Monitor LLC; June 15, 2020

In the first four months of 2020, the U.S. reduced imports of apparel from China, its biggest source, by 43.4% to $4.19 billion. Shipments from number two Vietnam fell only 1.4% to $4.15 billion. And imports from number three Bangladesh rose 1.9% to $2 billion.

That seems yet another example of how the Trump-era U.S.-China trade war is helping to permanently reshape global trade patterns. Covid-19, as it’s doing to so many parts of the global economy, is simply shaking things up even more.

Changing Trade Flows Fuel China’s Record Trade Surplus in May

The global Covid-19 pandemic is the global economy’s biggest speed bump this century. The International Monetary Fund has said it could shrink the world’s gross domestic product by 3%, and possibly more. Among those that have to adjust the most is China’s mammoth trading economy, the linchpin of global trade.

The long-term disruption still isn’t clear, but already, China is importing more commodities like oil and soybeans, losing exports of consumer items like phones and home appliances, and industrial goods like steel, aluminum and cars, and beefing up outgoing shipments of medical supplies to help fight the pandemic, according to an analysis of May exports and imports by Trade Data Monitor, the world’s premier source of trade statistics.

With so much in flux right now, including a dispute over Hong Kong, the U.S.-China trade war, and coping with the pandemic lockdown, businesses, governments and organizations are tracking data as closely as they can, especially trade statistics.

One trend that’s already clear: With uncertainty abounding, a scramble for key resources is afoot.

China has been ramping up imports of agricultural products. That’s partly because of an agreement with the U.S. to lower tariffs. But it’s also part of a broader trend as nations seek to ensure plentiful food supplies. Chinese meat imports rose 46.7% in May to $2.4 billion from $1.6 billion in May 2019, while soybean shipments increased 25.6% to $3.6 billion. Cereal imports rose 29.5% to $4.4 billion.

It’s also been importing more oil. Chinese crude petroleum imports increased to 48 million tons in May from 40.1 million tons in May 2019. However, a fall in oil prices caused imports by dollar amount to fall to $9.5 billion from $21.1 billion.

World Bank President David Malpass in a recent BBC interview called Covid-19 a “devasting blow” that would disrupt the livelihoods of “billions” and last at least a decade. Those billions include consumers and businesses from all seven continents who buy the iPhones, shoes, furniture, and thousands of other products made in China.

Chinese exports of mobile phones shrank 12% to 66.9 million units in May, from 76.1 million units in the same month the year before. With hundreds of millions of people losing or getting furlough from their jobs, spending on discretionary items is going to take years to recover.

There are some exceptions to the gloom. Exports of medical devices to help fight Covid-19 and related diseases, almost doubled, rising to $2.1 billion from $1.1 billion. And textile exports soared to $20.7 billion from $11.5 billion.

For all the damage Covid has done to consumer markets, it’s been even harsher on industrial goods. Around the world, the pandemic has forced the closure of iron ore mines, steel mills, and car factories from Detroit to Japan. In May, Chinese auto exports fell 14.5% to $1.2 billion, and steel shipments declined 25.7% to $3.7 billion.

China, Selected Exports; Billions USD; May 2019, May 2020; Garments and Clothing Accessories, Steel Products, Unwrought Aluminum and Aluminum Products, Motor Vehicles and Chassis, Ships; Source: China Customs Statistics via Trade Data Monitor LLC; June 8, 2020

To be sure, because of its internal market, sheer size, and other advantages, China is likely to hold on to its status as the world’s dominant manufacturing power. In addition, the Chinese currency, the Yuan, is getting weaker as investors seek safety in the dollar, which will further fuel Chinese exports.

In May, China exports declined 3.3%, while imports fell 16.7%, triggering a one-month trade surplus of $62.93 billion.

That was the highest monthly trade surplus in Chinese economic history.