COVID-19: A Return to Protectionism?

INTRODUCTION

The Coronavirus pandemic that was a result of an outbreak in Wuhan infiltrated the entire world with rapid speed and brought the global economy to its feet. Though this was seen as a public health phenomenon, the pandemic is largely concerned with the global economy and 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 victims of the pandemic. Nations closed their borders and called for protectionism with reduced trade in terms of exports and imports of goods and services. In such a situation, countries were forced to depend on their stockpile of goods and accelerate domestic production.

TRADE MEASURES ADOPTED BY VARIOUS COUNTRIES/REGIONS

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. Although one must remember that raising tariffs in such a situation will only fuel the crisis since it will lead to further inflation.

• India

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 health infrastructure of the country is poor in terms of quality and access to healthcare with a low doctor-patient ratio. In spite of the export ban on medical equipment, the country still faced a massive shortage of ventilators and other critical machines. In the month of 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 nation-wide lockdown and close its borders as soon as 10 cases were registered. The country registered only about 2000 total cases and 25 deaths. 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.

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 along with other members 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. 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. 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 and they did farely well.

• 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 thereof and the possible disruptions caused to the supply chain. These restrictions were imposed on an estimated $1.1bn of exports. 

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. 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.

• Africa

Africa is home to thirty-three least developed countries and these countries are the 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 since 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.

CONCLUSION

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.

Despite all the uncertainty and shortage of essential goods and services within each country, it is essential to keep the supply chain open and going, to meet the requirements of all the countries across the globe 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. The following recommendations can be made:

• Improve transparency in trade: critical commodities during the pandemic are a necessity and every country is in need of the essential goods. Hence, it is vital for the countries to be transparent about their respective trade measures and policies to enable the rest to better deal with the crisis.
• Keep the supply chains going: The ban on air travel and cargo led to a further scarcity of these critical resources since most of the commodities were stuck at the ports in 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 only 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 which should benefit 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 and thus, open markets and trade is essential for helping each other out 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 has not led to a return to protectionism but by taking into account the above recommendations, there can be a paradigm shift in terms of international trade cooperation.