Economic Nationalism Will Make COVID Worse
With most of the world grappling with COVID-19, some are calling for curtailed trade and protectionism to help fight the pandemic. These policies will not work. They rest on the false promises of economic nationalism, which is being exposed as shallow and ill-suited for the outbreak. The current crisis requires global cooperation and the free flow of goods and services.
In the United States, President Trump’s tariffs on imports from China have exacerbated problems with the public health response. As Chad Bown of the Peterson Institute for International Economics notes, “Trump’s tariffs have been slapped on nearly $5 billion of US imports of medical goods from China, about 26 percent of all medical goods imported from all countries.” Medical supplies subject to tariffs include disposable medical headwear, thermometers, hand sanitizer, and more. Customs and Border Protection (CBP) indicated last week that it would delay collection of tariff payments “on a case by case basis.” While this move is welcome, it does raise the question of why the U.S. imposed tariffs that artificially suppress the import market for medical supplies (and other goods) in the first place.
But just as CBP is promising tariff relief, Peter Navarro, the protectionist White House trade adviser, is reportedly working on an executive order that would “tighten ‘Buy America’ laws so federal agencies are required to purchase American-made pharmaceuticals and medical equipment.” Much of the active pharmaceutical ingredients in drugs are produced in China and Navarro views this as an opportunity to bring all manufacturing production back into the United States.
There’s reason to doubt that decades of offshoring could be undone soon enough to address the pandemic. Experts at the Food and Drug Administration, Treasury secretary Steven Mnuchin, Director of the National Economic Council Larry Kudlow, and other officials have pushed back on the proposal, arguing that it would “create more harm than good by restricting the flow of medicines and other supplies needed to treat coronavirus patients.”
In the long term, diversifying supply chains of pharmaceuticals makes sense, but returning massive amounts of production to the United States will dramatically raise the costs of such drugs, further straining government and household budgets. At a time when a growing bipartisan chorus is calling for lower drug prices, this proposal would do the opposite.
A more responsible approach was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act – the $2 trillion emergency bill President Trump signed on Friday – which requires the National Academy of Sciences, Engineering, and Medicine to study and report on the security of the medical supply chain. Once the crisis subsides, policymakers can use the report to address whether and how the United States needs to diversify medical supply chains, including our reliance on Chinese manufacturers.
In the meantime, it would be deeply irresponsible to exploit this crisis to push for a dramatic shift in medical supply policy. To be sure, China wasn’t transparent about the spread of COVID-19 in the early stages of the crisis, but now is not the time to antagonize Beijing. Instead, we need a coordinated response across the globe, including from China. There will be plenty of time for recriminations after this pandemic has subsided.
Furthermore, the United States shouldn’t implement protectionist policies against other countries that it wouldn’t want those countries to reciprocate. Ill-advised, nationalist-tinged trade policies in the midst of the COVID-19 outbreak are not limited to the U.S. A new report from Simon Evenett of Global Trade Alert notes that as of March 21, 54 countries had enacted export restrictions on medical supplies and medicines as a result of the COVID-19 pandemic. The results of these export restrictions are entirely predictable and will have devastating consequences. For example, the EU has announced export controls of certain medical equipment. Hamilton Medical, a Swiss manufacturer of ventilators, has seen demand skyrocket, but it is reliant on certain Romanian components, which were classified as a “medical device” and thus cannot be exported outside the EU trade bloc. This has created an unnecessary backlog at a critical time.
Evenett’s report highlights that over half of the world’s ventilator production is located in the EU and ineligible for export. If other countries with major production facilities follow suit, it would be devastating for the developing countries, where the virus is just beginning to spread, and which are entirely reliant on imported ventilators.
Thankfully there is some good news. South Korea has developed a 10 minute COVID-19 testing kit and is planning on exporting the crucial product around the globe. Under the circumstances, this should be the model for all key medical supplies.
In crises and economic downturns, there is a tendency to reject economic interdependence and turn inward. History has proven this to be a mistake: The United States imposed the Smoot-Hawley tariffs at the onset of the Great Depression, which prolonged the recovery and exacerbated nationalist sentiment around the globe as the world trading system collapsed. We should avoid repeating that mistake today. It will only make countries poorer, the world less safe, and the virus harder to treat.