[Ip-health] FT - THE EDITORIAL BOARD: Coronavirus must not destroy an open world economy - The global health emergency makes trade more important, not less

Thiru Balasubramaniam thiru at keionline.org
Sun Mar 29 03:01:10 PDT 2020


Opinion The FT View
Coronavirus must not destroy an open world economy
The global health emergency makes trade more important, not less
MARCH 27 2020

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

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.

Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International
41 22 791 6727
thiru at keionline.org

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