Pandemic Raises Worries Over Global Trade’s Future

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Anti-globalization sentiments are growing stronger as countries take a hard look at their supply chains amid the COVID-19 pandemic.

THE ONGOING CORONAVIRUS pandemic has upended international trade flows, decimating emerging markets dependent upon imports and exports and leading to shortages of medical and other essential supplies around the world.

But analysts are predicting there may not be a return to pre-outbreak norms once the spread of the disease has been brought under control. Many believe the outbreak has permanently altered the global flow of goods and services, as the concept of globalization loses political popularity and companies seek to minimize dependence on one particular country or part of the world.

“Take pharmaceuticals, for instance. In the future, I expect more production here in Europe,” Erich Staake, CEO of Duisport Group, said during an appearance on “Bloomberg Markets: European Open” on April 7. “In serious and specific areas, I’d guess European production would start again – not having all these facilities in China and depending on that.”

Officials this week earmarked roughly $2 billion to help domestic manufacturing companies move their operations out of China. French Finance Minister Bruno Le Maire told local radio station France Inter last month that one of the ‘long-term consequences” of the outbreak would be a forced re-examination of “the organization of globalization.” He said he believes France needs to “reduce our dependence on certain great powers like China.”

And in the United States – where President Donald Trump’s administration has been among the most active globally in pushing nationalistic policies and withdrawing from longstanding international trade accords – discussions are ongoing among both Republicans and Democrats about how to foster greater supply chain independence.

“We are dangerously over-dependent on a global supply chain,” White House economic adviser Peter Navarro told reporters during a coronavirus task force news briefing last week.

China over several decades built a reputation as a global supply chain powerhouse thanks in part to its robust labor force and relatively affordable production costs. But rising labor costs in China were already leading some companies to seek other locations such as Vietnam for their factories well before the coronavirus outbreak began.

Still, China is expected to remain vital to the global supply chain in the near-term – due in no small part to the fact that the virus appears to have largely run its course domestically. Aggressive quarantining measures in recent months shuttered much of the Chinese economy. But experts expect China to be fully operational well before its Western economic rivals in North America and Europe, which are still widely implementing stay-at-home orders to mitigate the spread of the virus.

“The Chinese basically have opened up. They are almost, kind of ready to go,” says Bhaskar Chakravorti, dean of global business at Tufts University’s Fletcher School of Law and Diplomacy, calling this “a potential turning point where China does come out ahead not just in terms of restarting their economy” but also aggressively using technology to track cases and mitigate future outbreaks.

As lockdowns and social distancing measures are enforced throughout the world, freight and cargo shipments have plummeted – both because many companies have shut their doors and because port and transportation workers around the world have been sick or have not been allowed to return to work.

“One cannot load ships, inspect goods, drive trucks, trains without people. We know that a good percentage of these people are unable to work because they are not considered essential or are infected,” Benjamin Laker, a professor at the U.K.’s Henley Business School, wrote in an op-ed on April 7.

The result has been a grinding halt to the flow of goods around the world that the World Trade Organization believes will make 2020 one of the worst years for trade in modern history. The WTO in a report published this week estimated international commerce will contract by at least 13% this year. In a worst-case scenario, it could plummet by as much as 32%.

“The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself,” Roberto Azevedo, the WTO’s director general, said in a statement on April 8, suggesting the economic calamity associated with the outbreak “may well be the deepest economic recession or downturn of our lifetimes.”

Further weighing on trade flows have been a series of government decisions to restrict international sales of in-demand medical equipment that doctors and health care professionals need in their fight against the pandemic. Countries are demanding equipment-producing companies to prioritize domestic orders and to, in some cases, cancel shipments abroad.

India clamped down on its outbound shipments of hydroxychloroquine, an anti-malaria drug that anecdotal evidence suggests may be effective in treating the virus – though it partially lifted its restrictions this week after drawing the ire of the Trump administration. Germany temporarily banned exports of medical protective gear last month. Pressure from neighboring countries dependent on those supplies, however, led Germany to make a similar reversal days later.

The U.S. is also preventing some domestically produced personal protective equipment from being sold overseas. The Trump administration has only allowed 3M to export certain ventilator products to some markets in North America and Latin America.

“One should worry most about developing countries without any domestic suppliers, who also need critical medical supplies, and who will be locked out, and not access essential equipment, medicines, and basic foodstuffs because of export restrictions in the developed countries,” Laker said. “We already see a fivefold rise in prices for medical supplies, and it will be hard for poorer countries to afford them.”