What fallout from Sickening-Thy-Neighbour Export Curbs on Medical Supplies?

Starting the conversation…

Simon J. Evenett, Global Trade Alert and University of St. Gallen, Switzerland

By my count, as of Good Friday, 102 curbs on COVID-19-related exports of medical supplies have been imposed by 75 governments this year. Currently, Australia, Canada, and Japan are the only sizeable economies to eschew export limits of their nation’s manufacturers of these vital goods. While the cost of such inhumane trade policy will be measured in lives lost by trading partners, from a geopolitical perspective the brutal question arises: So what? Will such curbs have long-term consequences?

Some may be tempted to argue that these export curbs are a realpolitik response in fraught times where “everyone” understands that governments will put their own citizens first. Unlike John Ruggie’s “Embedded Liberalism”—where trade rules get effectively suspended during sharp economic recessions, financial crises and the like—as such export curbs are WTO legal; the corpus of global trade rules is unscathed. On this view, then, the status quo ante will be restored once COVID-19 has been surmounted and the curbs are phased out.

Could a “come-to-Jesus” moment occur when even the most unilateral government realises that there is no way they can obtain the medical supplies they need without some type of international coordination to bolster production of vital medical supplies?

But should analysts be so sanguine? As they count the dead, nations that import all their medical supplies might not be so forgiving. Meanwhile, those governments that saw their contracted purchases of medical supplies diverted elsewhere by other states nurse grievances. Economic nationalists may conclude, as White House trade and manufacturing advisor Peter Navarro has, that in times like these even allies cannot be trusted and so greater emphasis must be put on self-sufficiency and unwinding, or at least shortening, international supply chains.

The failure of states to cooperate in tackling the most salient peacetime societal threat in living memory could become the point of reference in international relations. But could a “come-to-Jesus” moment occur when even the most unilateral government realises that there is no way they can obtain the medical supplies they need without some type of international coordination to bolster production of vital medical supplies? Or is this just another triumph of hope over experience?

Responses…

Richard Higgott, Emeritus Professor, University of Warwick & Professor, Vrije Universiteit, Brussels

Simon asks whether COVID-19 will lead to a “come to Jesus” moment or, what I suspect he sees as the more likely outcome, an expectation of a “triumph of hope over experience”. In so doing, he pinpoints a core dilemma for students and practitioners of international relations that pre-dates the pandemic. How can we ensure the continuance of some kind of global order underwritten by some kind of collective action problem solving capable of addressing global policy problems?

Simon found “murky protectionism” after the 2008 global financial crisis; we might call “murky geo-politics” in the increasingly bilateral transactional, international relations that has been nourished by a growing populist nationalist zeitgeist since at least 2008. Indeed, even the EU, turning its back on its long cherished commitment to multilateral problem solving, now proclaims its new “Geopolitical Commission”. It is in this wider context – often erroneously referred to as the end of the liberal international order – that the longer term international impact of global pandemic must be located.  

In short, the world will likely become less prosperous, less open, less free, and increasingly geo-political as states turn in on themselves seizing the opportunity to re-engage that mythical beast called national sovereignty. What started out as a US desire to de-couple its economy from that of China’s is now increasingly reciprocated by China. The era of the Trump administration’s transactional attitude to international relations in general and the bilateral relationship with China in particular has been crowned by COVID–19. 

As COVID-19 is eventually contained – and notwithstanding China’s initially appalling behaviour in the early days of the pandemic and the ensuing blame-game which will surely follow – we well may still continue towards a more China centric, but polarised world in which the role and the standing of the US is further diminished. As we head deeper into a global recession and the US fails to lead and manage international recovery, this pandemic could become the page break between the post-WWWII US led order and a new, increasingly bipolar order with two major regional blocs centred on the US and China.

Kun-Chin Lin, Deputy Director, Centre for Geopolitics

Simon’s call for international cooperation should be taken most seriously for most tradable goods. But medical supplies are not most goods.

First, we are looking at a situation of asymmetry, not interdependence with PRC. There is evidence that drugs, medial devices and diagnostic products are dominated by production sites in China. Chinese domestic demand surge and disrupted production are likely to sap the output for the foreseeable future. Could China guarantee supplies to other countries, possibly by forcing workers to return to factors without appropriate protection measures?

Second, how countries will respond over time to critical medical supply shortage is dependent on several structural factors – several of which favour restructuring the supply chains.

Countries that have a strong manufacturing base will be more able to internalise the cost of adjustment. Jobless workers and idle machines are prime for transition. Poland, Germany, South Korea, Mexico, and even Italy have above 16% – PRC’s ratio – of the workforce in manufacturing. They would seize their respective regional free-trade agreements to shorten the medical supply-chain for proximate large markets. US, UK and Netherlands have less than 10% and would find it harder to retool. Paradoxically, they have maintained the most favourable business environment for manufacturing. Since the 1990s, they have oriented their manufacturing sectors to take advantage of cheaper R&D and labour costs and capture markets abroad. To the extent much of that outsourcing has been to China, firms will think twice as they watch in horror the rapid evaporation of their capitalization. To the extent that the open investment regime has increased risks to national security, it will be under reassessment as Australia is currently doing.

Restructuring the supply chain is driven by concerns for reliability and quality as well as by the security of supply. Jeremy R. Haft’s finding ten years ago that drugs sourced from China are dangerous and largely unregulated remains as true today as it was then. Found to have sold useless virus testing kits to Spain, the Chinese producer blamed Spanish doctors and nurses for using them incorrectly. Short of the PRC proving its ability to enforce CE and other global regulatory standards and patent protections, any country with its people’s lives at stake cannot but consider alternatives.

In sum, I see the “unwinding” actions as justifiable on a much broader basis than nationalism. The economic welfare implications could be mediated through regionalism instead of unilateralism, but an acceptance of prior state of global supply chain as the basis for international cooperation is no longer an option.

Your view…

John Bibby, Radical Statistics and University of York

One (over-)simplified mathematical model suggests that optimal stock levels vary as the square root of the order rate. So if cooperation leads to orders say 16 times as much, then stock levels for all parties in aggregation can be reduced by a factor of 4. But models should not be overtrusted! Distribution costs need considering; these could increase if you have fewer depots.

Tom Goodwin, International Relations MSt Student, POLIS, University of Cambridge

I guess norms go through cycles, and the commitment to open trade as the basis of peace between nations, has been periodically tested since 1947. Even prior to COVID that commitment was in a waning phase. I might pick holes in the 102 number cited above – but certainly there have been a fair number of trade restrictive measures (noting too that there have been quite a few trade opening measures too), and I think it can be accepted that this has accelerated moves away from the non-discriminatory principles of the GATT. Some rather surprising policy options regarding state intervention are being considered by right of centre governments in developed countries in the management and direction of supply chains, alongside these trade restrictive measures. The trade and economic responses to the pandemic may well accelerate trends towards a bipolar or multipolar world, and corresponding fracturing of global trade into regional megablocs. That said, the non-discriminatory principles of the GATT have been an unconscionably long time a dying. Maybe some enterprising policy entrepreneurs can yet propose a further iteration and make a bridge to a more resilient multilateral future – or at least keep the show on the road a bit longer. Something for the new Director General of the World Trade Organization to ponder.

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