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.