2. The second shock (cumulative with the supply shock) raises the international trade costs of imports and exports by 25%. The shock is applied across all goods and services. Trade costs arise when goods cross borders.

The assumed increase in transport and transactions costs in foreign trade is driven by additional inspections, reduced hours of operation, road closures, border closures, increases in transport costs, etc. Evans et al. (2015) estimate that the outbreak of Ebola could lead to an increase in trade costs of 10%. Since COVID-19 is affecting more countries and the containment measures seem more severe due to the efforts to contain the virus, we amplified the shock increasing international trade costs of imports and exports to 25%.

3. The third shock entails a sharp drop in international tourism. This is captured via a 50% consumption tax on international tourism-related services, such as transport, accommodation, etc. This generates a typically small revenue for the relevant countries that is rebated back to households with a lump sum.<sup>5</sup> The export tax is applied to both outbound and inbound (tourist) services that include: accommodation, food and service activities; water, air and other transport; and recreational and other services.

The effects of COVID-19 in the tourism, hospitality and recreation sectors have been unprecedented. In the accommodation and lodging sectors, quarterly revenues are down 75%. Travel agents saw a slowdown in bookings of 50% in March of 2020. Airlines worldwide are expected to lose $113 billion in revenues for 2020. In the peak of the outbreak, 70% of scheduled flights in China have been canceled. As of mid-March 2020, international travel has ground to a halt, with the World Travel and Tourism Council (WTTC) estimating that global travel would decline at least 25 percent in 2020. To capture the effects of the drop in tourism, hospitality and recreation services, we implemented a 50% tax on the export of trade-related services, resulting in a drop in exports of tourism services at a global level of 20-32%.

4. The fourth shock represents a demand switch by households who purchase fewer services requiring close human interaction, such as mass transport, domestic tourism, restaurants, and recreational activities, while redirecting demand towards consumption of goods and other services. Demand for the targeted services is assumed to drop by 15%. This results in a reallocation of household demand across sectors, while total expenditures are still driven by previous shocks and relative prices of goods in the consumption basket.

It is difficult to estimate the impact of social distancing and overall decline of economic activity on those selected sectors, but anecdotal evidence suggests that it is likely to be significant. With social distancing measures and closures of nonessential businesses, the bookings through Opentable network declined by 100% in the second half of March (data form the United States, the United Kingdom, and Germany). Depending on the length of the business closures, the annual impact could vary drastically. The decline of 15% at an annual level seems like a middle of the road estimate.

5 There are a number of ways to affect demand choices by increasing the cost of purchasing the relevant good. The solution in this case has been to impose export taxes that directly affect the price of the targeted services. The revenues generated by this tax are rebated back to households.

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