In his new e-book, COVID-19 and Trade Policy: Why Turning Inward Won't Work, Simon Evenett makes the argument: “Trade isn’t part of the problem – it’s an essential part of the solution.”

As co-editor of a just-released ebook entitled COVID-19 and Trade Policy: Why Turning Inward Won't Work, Simon Evenett, Professor of International Trade, University of St. Gallen, Switzerland; and DLA Distinguished Visiting Professor at the Johns Hopkins Carey Business School, presents an emphatic argument that protectionism will only serve to deeply exacerbate the crisis, harming the “collaborative spirit” humanity will need to tackle – and ultimately banish – the scourge. 

Global trade in the age of COVID-19 has taken on a new dimension of urgency, as relationships between nations are critical to successfully fighting the pandemic. Unfortunately, some countries, in a misguided effort to protect their own self-interests, have imposed export restrictions on medical supplies and food, sparking the risk of such protectionist measures spreading worldwide, much like the virus itself.

As co-editor of a just-released ebook entitled COVID-19 and Trade Policy: Why Turning Inward Won't Work, Simon Evenett, Professor of International Trade, University of St. Gallen, Switzerland; and DLA Distinguished Visiting Professor at the Johns Hopkins Carey Business School, presents an emphatic argument that protectionism will only serve to deeply exacerbate the crisis, harming the “collaborative spirit” humanity will need to tackle – and ultimately banish – the scourge.  “Trade,” said Evenett, “isn’t part of the problem – it’s an essential part of the solution.”

QUESTION: You mentioned in your ebook that it helps to put recent developments in perspective by benchmarking against precedent cases. In that vein, you reference 2008, 2009, the Great Recession and the dangers of protectionism then. There were some, apparently, initial protectionist measures instituted and some saber-rattling, but overall, it seems countries stuck to open trade and cooperation. What could we learn from how nations reacted then to apply to the present situation?

SIMON EVENETT: The 2008-9 global recession was a scary moment. When we were at the beginning of that, there were very big concerns that we would see a global downturn, which would then result in protectionism. Indeed, that is the conventional wisdom amongst many senior policymakers today.

Fortunately, in 2008-9 we had leaders at the time who remembered the 1930s, an even earlier precedent where cooperation completely broke down in trade, world trade collapsed, and it was harder for economies to recover and restore full employment. With that in mind, leaders came together in November 2008 in Washington and April 2009 in London and confirmed that they would not slide into a protectionist spiral and they stuck to largely for a few years as far as trade restrictions were concerned.

They did cheat at the edges, but at least as far as the most salient trade policy is concerned, taxes on imports, they did not slip back into the 1930s way of doing things. That's the precedent I think these days we need to reflect on because we don't have a G20 which is cooperating to the same degree. If anything, they're actually still fighting over what words to call things rather than what actions to take.


Q: Along those lines, you mentioned that many governments need to shift their mindset: "International trade is not a problem, it is a solution," as your ebook puts it. Can you speak to that in a broad sense?

A: Absolutely. The mindset at the moment in many countries is very much "We need to grab as many medical resources as possible and try and help people in our own country." While helping people in their own country is certainly not objectionable, a simple part of the reality these days is that much medical equipment and medicines are made in international supply chains. So the idea that any one country is going to be able to ramp up on its own and produce enough medical kit to be able to help its population entirely is misguided.

The problem is one where essentially a pandemic hits countries at different points in time, but the production facilities of the world are global. Consequently, the mindset shift has to be the following: How do we take the massive manufacturing capacity we have around the world, and ramp it up in such a way that it produces the medical care and medicines to deliver to the countries that need it when they are facing the worst of the pandemic?

What makes this possible is that countries face the worst of the pandemic at different times. China faced it much earlier than the United States, so it's not a matter of everyone needs this medical care at the same time. We need to find a way of directing medical kit to where it's needed most at any one point in time.


Q: In the same vein, could you speak to intergovernmental cooperation? We've talked a bit about what countries should do. Is there any emerging evidence that this is happening?

A: The cooperation between governments that has happened up to now has often been between small groups of countries who have committed not to get in the way of "trade routes," as they're called. You've got a group which has been orchestrated by New Zealand and Singapore, which includes Canada and Australia, which have decided that they are not going to get in the way of trade between each other.

There's another group of countries, actually, 50 of them, including China and the United States who've made weaker promises in the area of trade in food, namely, that they're not going to impede those should shortages arise.

What we haven't seen is the cooperation on scaling up production to make sure that there are enough goods to ship in the first place. That's the big missing piece where we need a shift in mindset.


Q: You also mentioned that international cooperation at this time is "quite literally a matter of life and death." Would international manufacturing of the vaccine be the most poignant example, in your estimation?

A: Actually, I think we need lots of medical equipment now to help people before there is a vaccine. Once the vaccine is discovered, of course, we're going to have to find a way to be able to scale up production and to distribute it to literally billions of people worldwide. No one country's going to be able to do that alone and if any one country tries to corner that particular market, I think they're going to find that they will get into very, very serious trouble, very quickly.

There is going to need to be some understandings between governments. These understandings do not require having some big new institution and bureaucracy or anything like that. But, they could involve new organizations if people are not happy with the World Health Organization, for example. There is going to need to be a cooperation on the production of any vaccine and its distribution, especially when we realize that if this vaccine does not get to some parts of the world; for example, say parts of developing Africa, then there's a real chance that infections there will come back and spread again in richer countries. Vaccine or no vaccine, we need to be aware that we are all in this together.


Q: Getting back to 2008, 2009 for a minute, the eBook talks about the "Great Trade Collapse," as it was referenced back then. This has been dubbed, in a sense, a "Greater Trade Collapse." What makes this fundamentally different and potentially much worse than what we saw 11, 12 years ago?

A: Well, in 2008-9, we had essentially a demand collapse, which was preceded by a financial market collapse. The financial market collapse became a recession where demand then collapsed and we saw trade fall.

This time around, we have not only a demand collapse. Because we're all at home, not earning as much money, and in the case of some people, sadly, not earning any money at all, we have a supply collapse because our governments have told us not to go to work. Consequently, lots of manufactured goods aren't being made on the line. As a result, we have both a demand and a supply shock and the forecasts are that the reduction in world trade this time around will be as large as and almost certainly larger than what we saw in 2008-09. The forecasts these days call for between a 10% and 32% reduction in world trade and these were made by respectable international organizations.

 

“Economic nationalists talk broadly about repatriating production as if that is something which happens with a flip of a switch … Their proposals are for a future that we do not need and they do not help us with the challenges that we face today.”

Simon Evenett, DLA Piper Distinguished Visiting Professor

 

Q: There's also some discussion in the ebook about advocates of protectionism and how they often frame their arguments in more nuanced ways, such as "We can't rely on China," or, "We can't rely on the United States." These pronouncements seem to take on a nationalistic tone. Can you speak to what forms their arguments take?

A: Definitely. The protectionists and the economic nationalists this time around are being quite artful. They are very good at tapping into latent or, in some cases, blatant suspicion of foreigners by suggesting that some group of foreigners are not willing to cooperate or we're too reliant on them.

Often, by the way, those claims are made with next to no factual foundation but still, suspicions are aroused.  Instead of telling us what they want to do about it in specific terms, economic nationalists talk broadly about repatriating production as if that is something which happens with a flip of a switch. The protectionists and the economic nationalists have been very coy about what they would actually do and when they would do it.

The last point is really important. They seem to have a plan for changing the world economy over a 10- or 20-year period. I hear nothing from them about how they're going to help develop a vaccine, help produce a medical ventilator or other medical kit and help to save people right now. Their proposals are for a future that we do not need and they do not help us with the challenges that we face today.


Q: There is a striking example in your work about the interdependence and the mutual destruction, if you will, that this can bring on. You mentioned that the Chinese-US interdependence on N95 mask manufacturing which you equated to two people in glass houses throwing rocks at each other. Can you elaborate on that a bit and the self-destructive nature of such an approach?

A: What's happened over time, and this is a process which has been going on for 30 or 40 years, is that companies in the same sector have sometimes decided to produce solely in different countries. For example, you have Germany producing cars and exporting them to the United States and you have the United States exporting cars and sending them to Germany. Turns out that's because you have different types of cars, different types of expertise in these two countries, but they happen to produce in the same sector.

The same phenomenon is found in medical equipment, so we have the US shipping masks to China and China shipping masks to the US. Shutting off trade between them essentially deprives each side of the benefits of a wider variety of medical care. Not every mask is the same. You need different models for different situations, so it makes sense to have the widest possible variety. You do not want to be blocking off trade at a time like this. You actually want to be encouraging it.


Q: I think this may buttress everything that we've talked about at this point and in your work as well, you described protectionism not only as "self-destructive," but "immoral." Could you expand on that?

A: Often, when people talk about international trade and protectionism, it's a dry subject to do with efficiency, how we allocate resources, and what can we do to improve living standards. The arguments often seem to people, I think, very indirect. During a health pandemic, that's different because the idea that a country is going to cut off needed medicines to another country is one that anyone can understand. Anyone can see that doing that is going to deprive a trading partner's population of the medicines they may desperately need and it may well cost lives.

This is one of these situations where you ask yourself, "Well, if this was done to me, I'd hate it. Then why are we doing it to anyone else?" Since we're talking about jeopardizing people's health and possibly their lives, then I think the discussion gets elevated from "This is bad policy" to one of morality, because why should we allow a policy which devalues the lives of some people and puts at a premium the lives of others? That is something which I think after the horrors of the 20th century, we decided that we would never engage in.

 

Q: The pandemic, as we all know, we're in the thick of it now, and already, we've been hearing public health officials say there is a strong likelihood that there could be a resurgence in the fall. What should nations do in terms of trade in the near term, over the next, say, one month or two months as we're in the middle of this to ensure that we gain additional traction and that we're better prepared in the fall, should we encounter a new wave of the pandemic?

A: I really liked the way that you frame it because I think we have to understand that this first wave, no matter how dreadful it is, could be followed up by a second wave. In the 1918 pandemic, the second wave was five times more deadly than the first wave in the United Kingdom, so we really do need to think ahead.

We're not talking about years, we're talking months here, so we need our policymakers and experts to focus on the fact that in four or five months' time, we could be dealing with a much more serious breakout of this virus. In which case, we really need to amp up production and keep production up. We need to find a place to store it. We need to agree on how we're going to allocate it given that not every country is going to get hit with a second round at the same time. And we're going to have to come up with a series of understandings about how that might work out.

The one thing that makes that discussion a little bit easier is that no one knows now who gets hit first in a second round. If your country might get hit early, you have a very strong incentive to figure out a cooperative outcome here. You may be lucky that your country gets hit later, but you want to make sure that the system is up and running. That is the kind of shift in mindset that we think the collaborators in this ebook think is absolutely necessary if we're going to avoid the mistakes of the last six to eight weeks.


Q: In a sense, the pandemic has been a very humbling experience and since nobody knows what might happen in a second wave, doesn’t it behoove all of us to be selfless?

A: Right. There's a deeper philosophical point there. The philosopher John Rawls argued that sometimes, the best way to make decisions is to step behind what you could call a "veil of ignorance" and ask yourself, “Suppose you didn't know what your circumstances are in the future: How would you decide?” You step back from your immediate concerns and you ask, "Okay, what would it be like to be in different situations?"

Now is actually one such situation: We do not know which countries are going to get hit, when, and how badly in a second wave. We could have governments stepping behind the "veil of ignorance,” to decide, “Okay, wait a minute. We need to design a system which works for as many countries in as many circumstances, because each country knows that they can't possibly know when they're going to get hit and how badly they're going to get hit.”


Q: Could the pandemic, in a cynical way, perhaps be viewed as a great equalizer that the world has not seen in recent times?

A: Maybe. We haven't been called to deal with such an urgent crisis like this in a very, very long time, and not surprisingly, policymakers have forgotten how to do this. We do have important challenges for the world, which are slow burn, like climate change, and we can see that that's actually really hard to get governments to agree on, because many political leaders think "Well, by the time the trouble happens, I'll be out of office.” They don't see a benefit anytime soon. The thing about the current pandemic is that this is here and now, it's serious, it's far-reaching, lives are at stake, and politicians recognize that their place in history will depend on how they behave.

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DLA Piper Distinguished Visiting Professor

Simon Evenett, PhD is the DLA Distinguished Visiting Professor at the Johns Hopkins Carey Business School. He is an economist and expert on international trade.

Posted

May 18, 2020

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