The coronavirus pandemic is a shared emergency. It would be a paradox and a disaster if the outcome were to be the closure of borders to trade. Yet shortsighted export controls, protectionism and the economic slump may together have this result. Protection magnified the disaster of the Great Depression of the 1930s. It must not do so this time.
The immediate concern is beggar-my-neighbour controls on exports of medical equipment. According to Global Trade Alert, 24 countries, including Germany, France, Taiwan and South Korea, restricted exports of such products between January and March 11 2020. The US heaps domestic insult on foreign injury by continuing to levy high tariffs on imports of medical equipment from China. Chad Bown of the Peterson Institute for International Economics notes that Donald Trump’s “misguided” trade war may cripple the fight against the pandemic.
Unlike Mr Trump’s foolish tariffs, these export controls are consistent with World Trade Organization rules. Members may impose export restrictions “essential to the exporting contracting party”. Furthermore, the provisions on security state that a member may take “any action which it considers necessary for the protection of its essential security interests . . . in times of an emergency in international relations”. A pandemic must count as such.
The question is rather whether export controls are good policy. They are not. It would be far better if they were lifted, since they damage the health-service capacity of countries that cannot make desperately needed products. They may also fracture supply chains and lead to the creation of higher-cost domestic capacity. Some will counter that domestic production is the only reliable source of supply. The virus has demonstrated the falsity of this: if the sole domestic factory is located in an area in lockdown its supply can disappear. Diversity of sources of supply, together with stockpiling for emergencies, is the safest policy.
Another vital trade policy issue will arise in the near future: the licensing of drugs and vaccines effective against the virus. The world has an overwhelming interest in ensuring these will be universally and cheaply available. Fortunately, trade rules allow compulsory licensing. If necessary, it must be used,
Crucially, trade is going to collapse, as the economic impact of both the virus and policies to tackle it hit home. The number of seaborne shipments from China into the US fell more than 40 per cent in the first two weeks of March relative to the same period of 2019. Worse will follow in coming days.
Today, the worries are disease and recession. Yet, in time, people will return to work. Many jobs will then depend on recovery of external demand. This is why policy co-ordination and co-operation are so important. In their absence, countries may be tempted to replace their lost foreign demand with domestic production, by raising the barriers to foreign supplies. This would launch another damaging round of beggar-my-neighbour policies, shattering supply chains, slowing recovery and thwarting the return of an open and dynamic world economy. Such autarky is not a new idea: the Soviet Union was a failed exemplar.
Trade liberalisation was launched after the second world war, precisely to reverse the protectionist response to the Great Depression. That liberalisation spurred the recovery of western Europe. Later, it spread to the wider world, with gratifying results for growth and poverty alleviation. We must avoid the mistakes of the 1930s. We need to retain that legacy of openness now, if we are to enjoy healthy recovery when the pandemic passes.
Source: Economy - ft.com
