Coronavirus and trade – reflecting today’s messy globalization
By: David Henig
Subjects: European Union Healthcare WTO and Globalization
The bravest prediction in the midst of a crisis is that nothing will change as a result. Typically at such times, the optimists hope that a crisis will be the incentive to fix the problems we have, taking post second world war rebuilding as their marker, and thus in trade hoping for reduced protection and a reinvigorated WTO. The cynics draw upon numerous examples to fear that populist and fearmongering politicians will increase in popularity, with a negative impact on trade.
To predict little will change one has to start by understanding what the situation was going into the crisis. In global trade we had seen the end of a period in which removing international trade barriers was the predominant consensus, running from approximately 1990 to 2013, towards a messy national populist globalization mix where some liberalising bilateral and plurilateral initiatives are overtaken by increased protection driven particularly but far from exclusively by the US.
This current situation has not been widely appreciated. Supporters of free trade have still been proposing various ways to reform the WTO notwithstanding the seeming impossibility of finding agreement in a consensus organisation. Those who emphasise the nation-state, that clearly include President Trump and ardent Brexiteers, claim implausibly that this can be consistent with global institutions.
This mix is in turn what we now see played out in the handling of coronavirus. Until we know how long the current crisis will last we can’t say if one side or other will be boosted by it, but the status quo looks hard to shift when we consider some of the main facets below.
Identification with countries and regions
For all the many single markets and customs unions around the world, the primary identification of populations is to a country, something that becomes more apparent during a crisis. In some cases, particularly in case of poor leadership within the country, people look to smaller units such as US states or constituent parts of the UK such as Scotland and Northern Ireland. The first thought, therefore, is what can be produced at home, not what can be obtained by trade. While trade is theoretically popular, that does not outweigh national feelings. In both the US and EU we have seen in this crisis a struggle to maintain a single market. In the UK news stories have favoured national efforts in subjects which are naturally international, such as producing more equipment or developing vaccines.
Production is more varied than global supply chains suggest
The trade community have become accustomed to discussing complex supply chains in sectors such as automotive, mass-market production particularly in East Asia, and emphasising the importance of trade. Absolutely true, yet large amounts of production have remained local to their markets, particularly in fast-moving consumer goods, but also in various diverse manufactured products. We are now seeing countries attempt to make use of this in asking such manufacturers to repurpose for immediate needs in fighting coronavirus. We are likely to see the protection of domestic production rise in consideration in the immediate future, including for food security. But it never really went away, and governments will still have to balance trade, domestic production, and any special pleading for protection in their considerations.
Global cooperation is still required in trade and economics
The strength of the nation-state has probably been persistently underestimated by the trade community. Yet a pandemic shows starkly why global cooperation is required, given that any single country eliminating cases will still be vulnerable to others failing to do so. Therefore effective treatments and vaccines have to be shared globally. It is most likely these will also be developed and tested through global cooperation. Similarly, we have seen some countries attempt to restrict exports of key items, but since they also want to keep importing what they can’t produce, and exporting various products, this can’t be an effective solution. Global trade is therefore required, and at a time of deep concern and sometimes panic, global cooperation has to support this. We should also note that notwithstanding reduced international travel and greater border checks, notably inside the EU, supply chains in key items do seem to be holding up to a reasonable degree. Indeed, at times of strain on all countries, it is reassuring that the global trading system can still provide products, and something that supporters of trade should be emphasising.
Services trade is more fragile than goods trade
Even 25 years after services were brought into the global trade architecture with GATS we still struggle to adequately conceptualise them. Goods we can see, while services vary hugely, and their measurement internationally remains difficult. What has become obvious in recent weeks is the fragility of services trade to national decisions, much more so than goods. Travel restrictions have huge impacts on services trade, ranging from those whose business models require travels, through to the huge numbers of tourists and overseas university students not travelling. Yet we discuss restrictions on goods, from border closures to tariffs, much more extensively. While that’s the case, and while we struggle to find the language, services will remain the poor relation of trade policy.
Absolute national sovereignty is not possible
One of the most notable aspects of coronavirus so far has been the way national responses are measured against other countries. This has been clearest in terms of domestic mitigation measures, but the same also applies to those wishing to demonstrate the quality of their products, through for example demonstrating adherence to EU product rules. The Brussels Effects describes exactly this process, as in a slightly different way the California Effect described for the US. In coronavirus response as in regulations, the US is fragmented with states taking action where the centre fails, looking at European countries for guidance. Meanwhile, the UK’s declaration of regulatory sovereignty looks increasingly theoretical, when the rest of the world treats so many EU regulations as a gold standard, and when consumers want to know that products are as safe as possible.
In a tri-polar world, there will not be stable international cooperation
We knew the WTO was in trouble, but many hoped that somehow solutions would be found, or a different US President elected. It may have taken a global crisis to demonstrate that there is currently little prospect of full multilateral cooperation. In different ways, we currently have three top-tier powers, the US, China, and the EU, who compete in many ways and struggle to work together. Then we have three second-tier powers, Brazil, India, and Japan, interacting awkwardly with each other and the first three. Those who look to multilateral solutions tend to be in the third-tier, the likes of New Zealand, Canada, and Singapore, among the countries who have committed not to put up trade barriers at this time. That’s positive, but if the larger powers can’t work together at this time there’s no great prospect of doing so for less pressing issues. Saving the WTO but making progress outside it may be the best we can hope for.
Perhaps the current fractured globalization changes with a long crisis, or if one or more countries is seen to have handled coronavirus particularly badly and out of line with global norms, with Brazil and the US in the lead in that unenviable category. But if the coronavirus crisis passes in a few months the chances are it leaves us still trying to gain the benefits of international trade against a backdrop of assertive national populists. Continuing to navigate a complex global landscape. In other words little change, except perhaps more visibility of what was already happening.