In the first part of this article, we outlined the unexpected, deep economic distress that the Covid-19 pandemic has wrought on the world economy. Stressful as this has been to the world financial system, there are more than a few grounds for optimism. If one looks at world trade, however, stressed at the moment, it does look remarkably robust.
Boosting international trade, alongside sound economic management, are the twin pillars of from Covid-19 economic recovery. After the financial crisis of 2008/9, world commerce was the stimulus that compensated for the bad economic policy decisions which caused the crisis. Nations used each other’s recoveries to boost individual and regional economies. The relatively liberal free trade consensus meant that companies were not hindered by trade tariff wars and other impediments to world trade.
In these economically troubled times, it is vitally important that all parts of economic strategy work as one. Regrettably, world trade entered this emergency in a delicate state: burdened by tariffs on goods and ongoing trade disputes. In the last quarter of 2019, world trade was already in a downturn pre-pandemic.
Reacting to this emergency by turning further inwards would only lead to much more significant financial losses both now, and further along the line.
Moving inward – a backward step
While some countries may feel the impulse to close markets and move toward economic autarky, hiding behind tariffs and regulation. The consensus is that free trade is the only viable way out of this unpleasant situation. Those following a plan to make markets national and not international have a lot more would lose. Economic growth would be stunted. Both productivity and economic activity would be hit by these contracting markets and falling economies of scale that would result from such protectionism.
It can be seen at this moment how exchange limitations and duties are hindering the attempts to scale up provision of ventilators and PPE; which are so desperately needed. At the point when nations begin planning for the subsequent pandemics, having the option to source parts of the supply chain across national boundaries is vital. National co-operation will assist countries by building stores of these materials much more cheaply and efficiently. An ever-increasing number of governments are contacting the World Trade Organisation concerning Covid-related exchange measures. This data, which is open to all, will assist the entire world in seeing how the market is developing.
The idea that less economic trade with the rest of the world makes economies stronger isn’t one borne out by reality: autonomy in necessities would make nations more, not less, helpless if struck by a localised situation – extreme weather for example. Flexible supply chain expansion, an increasingly sensible goal, would be better accommodated by international agreements rather than a race to the bottom caused by tariff wars.
Protectionism is not the answer
Protectionists claim that the movement of both peoples and tradeable goods lead to a higher risk of the spreading of diseases. Be that as it may, this has been the case for centuries. Furthermore, the sharing of scientific developments across the globe has led to the eradication of diseases such as smallpox; with more diseases moving closer to eradication.
The combined efforts of the medical and scientific industries internationally will ultimately develop the vaccines and treatments that will lead the globe out of the Covid-19 pandemic. Using these mutual beneficial approaches to economic trade will hasten the global recovery as opposed to any lone nation attempting to solve this situation unaided.
The urge to hide behind a wall of regulation and tariffs in extreme situations can be a strong one. Experience shows that governments and institutions should avoid this urge. Robust international supply chains, bringing to bear a variety of materials and abilities is the way to escape the dreadful consequences of this pandemic. Closing borders and raising artificial barriers to trade is not the answer.