M.A. (D.L.B.), Jindal School of International affairs, O.P. Jindal Global University
With the spread of the coronavirus pandemic, every country across the globe closed its domestic borders to the rest of the world and took stringent trade measures. The first impression of this scenario would be that the world is returning to protectionism but there is a need to study this situation closely before any conclusions are made.
This study approaches whether the pandemic has resulted in a return to protectionism or a paradigm shift in international trade. The research relies on secondary data collected through verified and official sources. The author has undertaken the method of content analysis and interpretation based on the secondary data.
The researcher finds that although the short-term implications of the pandemic identify as a return to protectionism but with the relaxation of the lockdown and with the decline in cases, all the countries are slowly leaning back towards liberal trade like before.
The study suggests that protectionism is not the answer during such health and economic situations and gives recommendations to make trade a more transparent measure towards international trade cooperation.
Keywords: pandemic, trade, restrictions, imports, exports, coronavirus
The coronavirus pandemic resulting from an outbreak in Wuhan infiltrated the entire world with rapid speed and brought the global economy to its feet. Initially seen as an epidemic that confined itself to East Asia, the virus rapidly traversed the world and turned itself into a global pandemic.
Though this was seen as a public health phenomenon, the pandemic is largely concerned with the global economy. It has subjected the world to a recession greater than the financial crisis of 2008.
Countries all over the world have been facing low economic growth coupled with high rates of unemployment and inflation. With an already slowed down economy, international trade is visibly the biggest victim of the pandemic. Nations closed their borders and called for protectionism with reduced international trade. Countries were forced to depend on their stockpile of goods and accelerate domestic production in such a situation. Therefore, there is a dire need to study the changes in the international trade system and the implications thereof.
This study investigates the implications of the different approaches of the various countries and regions in the context of trade. The paper seeks to answer whether the coronavirus pandemic called for protectionism or a paradigm shift in international trade from a global perspective.
The research undertaken is qualitative and analytical as the researcher wants to study the implications of the measures taken by various countries and regions and eventually look at the scenario posed by the virus through a global perspective.
The study uses secondary data available through various official and verified sources and employs the method of data analysis to analyze the trade measures taken by the selected countries and regions. The analysis is mostly descriptive and explains the trade measures while also being interpretive in the sense that it interprets the recommendations based on these trade measures.
REVIEW OF LITERATURE
(Agarwal & Mulenga, 2020) This paper focuses on the adverse effects of the covid-19 pandemic on trade in Africa. The authors argue that protectionism deters the growth of LDCs and the use of plurilateral agreements with economically advanced countries can benefit all the parties.
(Gruszczynski, 2020) The author talks about the impact of the pandemic on international trade. In the long run, there will be visible structural changes in globalization and the chances of the paradigm shift of international trade depend upon the gravity of the impact.
(Vidya & Prabeesh, 2020) This paper measures the impact of the pandemic on the international trade networks. It seeks to predict the future trade directions while focusing on the structural changes in trade due to the Chinese economy.
(Ozili & Arun, 2020)The research investigates the spillover effect of the pandemic on all the aspects of the global economy like the stock market, financial and public health sectors to name a few. The study also suggests the various activities that took place within an economy like the changes in the fiscal and monetary policies and their resultant effect on trade.
Covid-19 has been a supply shock as well as a demand shock to the world economy. (Baldwin & Tomiura, 2020) With the virus spreading across the globe, countries resorted to restricting trade of certain essential medical exports. Although one must remember that raising tariffs in such a situation will only fuel the crisis, it will lead to further inflation.
With disrupted transportation facilities, the global supply chains have been distorted even further. Most countries implemented a complete ban on the export of essential medical equipment, food and pharmaceutical products while some used liberalization measures to export some essential goods in the pandemic.
This part of the research studies the immediate trade measures taken by the different countries during the pandemic.
While many contend that India will soon emerge as one of the superpowers in the near future, the current economic scenario paints a contrasting picture. The country’s health infrastructure is poor in terms of quality and access to healthcare with a low doctor-patient ratio. India had around 13,000 registered deaths due to the virus and total cases to the tune of 89 lakhs. (Worldometer, 2020)
Table 1: Trade measures taken by India due to Covid-19 (World Trade Organisation, 2020)
|31st January to 16th October||Export restrictions on personal protection equipment and masks which was lifted later on.|
|3rd March to 6th April||Export restrictions on Active Pharmaceutical Ingredients, lifted eventually.|
|19th March||Export restriction on textile raw materials for masks|
|25th March to 18th June||Export ban on hydroxychloroquine, lifted in June.|
|September-November||Approval of export of diagnostic kits|
Despite export bans on medical equipment, the country still faced a massive shortage of ventilators and other critical machines. In March, the government of India launched an e-commerce platform for the procurement of medical equipment by the government only. The country also amended its FDI policy to avoid takeovers and acquisitions of Indian companies. Like most of the countries, India’s immediate response to the pandemic was protectionism, but almost all the export bans and restrictions were lifted eventually by the month of November.
- Oceania (New Zealand & Australia)
New Zealand was one of the first countries to declare a nationwide lockdown and close its borders as soon as 10 cases were registered. The country registered about 2000 total cases and 25 deaths. (Worldometer, 2020) Furthermore, it was the first country to defeat the virus in September. On the other hand, Australia recorded around 27,000 total cases with about 900 deaths as of November 2020. (Worldometer, 2020)
Table 2: Trade measures taken by New Zealand and Australia due to Covid-19 (World Trade Organisation, 2020)
|March to June||Temporary elimination of import tariffs on certain soaps and testing kits|
|April||Temporary reduction of import tariffs on certain medical and hygiene products|
|April||Completion of the MFN applied tariff elimination process|
|March (Australia)||Temporary restriction on the export of PPE kits and sanitizers for non-commercial purposes to avoid hoarding and profiteering|
As part of a collective response, New Zealand and Australia, along with several other countries like Canada and Singapore chose to keep their trade and global supply chains open. Moreover, New Zealand and Australia and other member of the WTO have assured their support of the multilateral trading system and support trade in agriculture to avoid any negative impact on their populations. (New Zealand Foreign Affairs and Trade, 2020) Australia applied no restrictions on the imports and exports of agricultural goods and allowed trade as before during this period. The Government of Australia also provided international freight assistance of $110 million to promote the export of seafood. (Government of Australia, 2020) Australia also extended work visas of non-nationals working in the agriculture and food processing sectors. These countries see trade as a key to economic recovery from the shackles of Covid-19.
- United States of America
In recent decades, U.S. typically applied export restrictions on defense goods, crude oil and sanctioned articles. By April 2020, the country imposed restrictions on a wide range of medical goods like PPE kits, gloves and respirators. The restrictions were imposed keeping in mind the humanitarian effects and possible disruptions caused to the supply chain. These restrictions were imposed on an estimated $1.1bn of exports. (Congressional Research Service, 2020)
With a trade war with China already in place, USA took more measures to deal with 12mn total coronavirus cases and 2.5 lakh fatalities. (Worldometer, 2020)
Table 3: Trade measures taken by USA due to Covid19 (World Trade Organisation, 2020)
|September 2019 to Sept 2020||Temporary exclusion of certain products from the additional duty of 25% from China|
|April to December||Temporary rule by the Federal Emergency Management Agency (FEMA) allocating certain scarce or threatened materials for domestic use.|
|August||Executive order for the manufacture of essential medical equipment|
|August||Temporary authorization of export of PPE kits|
Apart from trade measures with respect to goods, USA took a number of trade measures in services like suspending the entry of foreign nationals in certain non-immigrant visa categories as well. (World Trade Organisation, 2020)
- European Union
The European Union forms the largest trade network in the world with trade agreements among its member States. EU has some major trade partners with whom it carries out much of its trade in goods and services. Still with the onset of the pandemic, the exports with all five of its major trading partners decreased- with Switzerland (-8.5%) and China (-7.1%), followed by Russia (-6.8%), the United Kingdom (-6.2%) and the United States (-4.2%). (Eurostat, 2020) The same pattern was seen even with respect to imports.
In response to the economic shock due to Covid-19, the European Commission issued guidelines for screening of foreign direct investment among various sectors of the economy including health and biotechnology. Air and maritime transport services along with financial services saw a lot of structural changes during this period to prevent any further economic damage. (World Trade Organisation, 2020)
Table 4: Trade measures taken by the EU due to Covid19 (World Trade Organisation, 2020)
|26th April to 25th May||Exports of personal protective equipment subject to an export authorization.|
|30th January- 31st October||Relief from import duties and VAT exemption on imports of essential goods.|
|Guidelines on the optimal and rational supply of medicines to avoid shortages during the COVID-19 outbreak.|
In addition to the guidelines issued with respect to transportation facilities, the European Commission also issued guidelines aimed at protecting public health and maintaining the integrity of the Single Market. This involved preventing national-stockpiling of goods from avoiding the scarcity of essential medicines and goods in member States. The member States would be supplied with the essential goods regardless of their location. Due to the openness of trade within the EU, some countries like Germany could curb the virus successfully.
Africa is home to thirty three least developed countries. These countries are most vulnerable to the external shock to their economies caused by the disruption in the global supply chain. These countries are severely affected by the trade restrictions implemented by the other economically strong countries since the economies of the LDCs depend solely on aid through trade in goods and services.
African countries import more than 50% of their industrial and transport equipment from countries located in other continents. Moreover, more than half of the countries depend on trade for basic food items and essential goods. Africa faces severe food shortages and malnourishment is a common phenomenon in the region. Hence, for the continent of Africa, protectionism is not a feasible option since the very livelihood of the Africans depends upon trade in all the sectors of their economy.
Most of the trade measures taken by the continent were in the form of the elimination of tariffs to make the essential goods available during the pandemic.
Table 5: Trade measures taken by the region of Africa due to Covid19 (World Trade Organization, 2020)
|Chad||Temporary elimination of import tariffs on certain products|
|Egypt||Temporary export ban on some leguminous vegetables and products|
|Morocco||Temporary ban on the export of masks and PPE kits|
|Nigeria||Temporary elimination of import tariffs on essential medical supplies|
|South Africa||COVID-19 export control regulation on certain personal protective equipment|
|The Gambia||Termination of the temporary prohibition on exports and re-exports on essential commodities and petroleum products|
All these trade measures were temporary and lasted only for a few months until the number of cases started declining slowly.
Covid-19 brought a number of challenges and a lot of uncertainty with it. In such a scenario, countries have to make a decision whether they want to take hostile and protectionist measures or collectively work towards overcoming the crisis.
With the help of the data presented in the discussion above, it can easily be concluded that the immediate response of almost all the countries and regions across the globe was to resort to protectionism and make them self-sufficient which is a natural response. Although, this is a sign of an apparent shift from globalization and a trend towards protectionism, it was only a short-term consequence in response to the pandemic. Most of the trade measures taken by various countries were temporary until they saw a decline in the number of cases and deaths.
The research undertaken is limited by the study of only five countries and regions but it is still enough to conclude that protectionism is not the answer during a pandemic. In fact, from the tabulated information taken from the World Trade Organization, it is evident that simply relying on domestic production of essential medical equipment and goods is not enough; countries will have to consider trade as a solution to the scarcity of vital goods. Countries like Africa depend upon trade for essentially everything. It can also be seen that the countries which did not implement strict restrictions on trade like Australia and New Zealand, were more successful in dealing with the pandemic since there were a few disruptions in their supply chain.
The Regional Comprehensive Economic Partnership was recently signed on 15th November, 2020 forming the biggest trade bloc in Asia. Although India pulled back from the agreement since the country is working on its new ‘Aatmanirbhar’ or self-reliance initiative taken by the Prime Minister; a lot of experts agree that India will be losing out on a lot of benefits by doing so. Recently in December 2020, UK declared that they would drop tariffs on the U.S. post Brexit. This further strengthens the argument that protectionism due to Covid19 is only a temporary phenomenon as no nation has all the resources to make it completely self-sufficient.
From this perspective, it can be assured that once the pandemic fades away, the trade scenario will eventually return to its normal state.
Despite the uncertainty and shortage of essential goods and services within each country, it is important to keep the supply chain open to meet the requirements of all the countries through collective action. In fact, the most important lesson learnt due to the pandemic is that no country can solely rely on its domestic supplies or resources during a health and economic emergency. After studying the data and interpretations provided in the discussion above, the following recommendations can be made:
- Improve transparency in trade: critical commodities during the pandemic are necessary, and every country needs the essential goods. Hence, the countries need to be transparent about their respective trade measures and policies to enable the rest to better deal with the crisis. Overall, all the countries were fairly transparent with respect to their trade policies during the pandemic.
- Keep the supply chains going: it can easily be inferred from the data that the countries that adopted more liberal measures of trade; faced fewer shortages of essential commodities. Moreover, the ban on air travel and cargos led to a further scarcity of these critical resources since most of the commodities were stuck at the ports in China. (OECD, 2020) Though free travel poses a threat to public health, it is essential to curb the effects of the crisis. The effects of these threats can be mellowed down by safety measures like border checks and increasing the use of digitally enabled services to avoid physical contact.
- Avoid further trade tensions: with a huge supply and demand shock to the world economy, increasing trade restrictions will worsen the crisis. Unfair competition and trade distortions must be avoided in order to help maintain international co-operation during a worldwide pandemic. There should be a common goal that benefits all. The signing of the RCEP deal is a step towards regional cooperation that will benefit all member countries in such distressful times.
- Long-term measures: Covid19 is a lesson for the future and all countries must take this as an opportunity to be in readiness for health crisis in the future. Ensuring transparency, reducing tariffs on medical commodities and creating a common stockpile of resources are some steps that can be taken in the future.
The coronavirus pandemic hit different countries at different times and rates. Thus, open markets and trade is essential for helping each other in dealing with a crisis that hit us all and considering the temporary bans and the eventual return to normalcy in trade, it is safe to say that the pandemic will not lead to a return to protectionism in the long run but, by taking into account the above recommendations, there can be a paradigm shift in terms of international trade cooperation.
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The opinions expressed in this article are those of the author (s). They do not purport to reflect the opinions or views of the Jindal Centre for the Global South or its members.