How Covid-19 infected global trade

The rules of global trade went out the window between February and April as nations fought like cats to secure supplies of personal protective equipment (PPE). It was each for themselves and the devil take the hindmost.

A shipment of face masks donated by China to Italy was seized en route by the Czech Republic in what it said was an ‘anti-trafficking’ operation. French officials claimed US agents appeared at Shanghai airport offering three times the price they had paid for a consignment of face masks that was already loaded onto an aircraft about to depart.

Brazil similarly complained about the US gazumping its purchases of PPE from China, with its trade minister alleging the US had sent 23 of its largest cargo aircraft to scoop up all available supplies. Israel deployed its intelligence service, Mossad, to secure coronavirus testing kits.

Members of the European Union also behaved badly. Germany and France both banned exports of hospital equipment in March—including to Italy, which was suffering more than anywhere else at the time. The EU stepped in, saying they could not bar sales to fellow members, but agreed to block all EU exports of protective equipment to anyone else.

It then had to amend the prohibition to exempt non-members Switzerland and Norway, but Russia, which had purchased US$4.3 billion worth of PPE from the EU in 2019 and was facing a raging epidemic, was left in the cold.

Possibly inspired by the EU, the Trump administration invoked wartime powers under the Defense Production Act to ban exports of respirators, masks and gloves. Manufacturer 3M was ordered to halt PPE exports from its US factories to Latin America and Canada. Some exemptions were later extended on the proviso that 3M would direct output from its Chinese factories exclusively to the US. Canada’s prime minister, Justin Trudeau, warned of retaliatory measures, noting that the US also imported PPE.

Petersen Institute of International Economics analyst Chad Bown has estimated that the US export restrictions applied to US$1.1 billion of exports while the country imported US$6.2 billion of similar goods in 2019. If trade partners were to retaliate, he argued, the US would be left worse off. He noted that US production of hospital-grade protective garments depended on supplies of specialty pulp from a Canadian paper mill.

The US export bans hit a number of countries hard. Jamaica, Bermuda and the Dominican Republic rely on the US for between half and three-quarters of their supplies of respirators and masks.

While China engaged in ‘face-mask diplomacy’, making high-profile donations of PPE to selected countries in need, the Petersen Institute’s analysis shows that it had been largely responsible for the shortages on the world market at a time of peak demand.

In the first two months of the year, as the Covid-19 crisis peaked in China, it imported 8.7 million more kilograms of masks than in the same period of 2019 (when imports were negligible) and it exported 22.8 million fewer kilograms. This combined to reduce China’s net exports of masks to the world by 24%.

Bown says the position improved in March, but China’s net exports were still down by 5% on the previous year, despite soaring world demand. With blatant profiteering by Chinese suppliers, the average export price of its face masks in March was almost three times the level of the previous two months.

Australia is home to the world’s leading manufacturer of medical and industrial PPE, Ansell, which has operations in 55 countries, structured around the global free trade of goods. Its chief executive, Magnus Nicolin, told the Financial Times that the national restrictions were ‘messing with the flow’ of goods and their input supplies and leading to more inefficient production.

Financial Times analysis of World Trade Organization data shows that more than 70 nations have placed export restrictions on face masks and eye protection, while around 50 have bans on exports of protective garments and gloves and 30 are curbing exports of sanitisers and disinfectants.

Australia imposed a ban on the ‘non-commercial’ export of PPE and sanitiser products, which was intended to prevent individuals and criminal syndicates from hoarding, price-gouging or otherwise profiteering. The measure coincided with reports of Chinese individuals arranging airlifts of face masks from Australia to China.

However, Australia has sought to be a voice of order amid the chaos of PPE supply chains. A meeting of G20 trade ministers on 30 March produced a weak communiqué declaring that members would take necessary measures to facilitate trade in essential medical goods ‘consistent with national requirements’, while saying any emergency trade barriers should not cause ‘unnecessary’ disruptions of supply chains.

Trade Minister Simon Birmingham followed up a month later with a tougher statement, jointly signed by his counterparts in New Zealand, Singapore, South Korea and Canada, calling on G20 members to refrain from export restrictions on medical supplies, pharmaceuticals and food to preserve the ability of all countries to import the supplies they needed. He urged nations to work on their logistics and customs clearance processes to facilitate the smooth flow of trade.

Birmingham also put his name to an open letter, joining again with counterparts from Singapore and New Zealand and also from the UK, declaring the importance of an open, rules-based global trading regime and calling on nations to roll back their trade barriers. The Covid-19 outbreak should ‘lead us to deepen our commitment to shared rules for the governance of global trade and investment’, the letter said.

But the very act of signing such minority statements underlines the reality that the majority are putting their own interests first. The Trump administration put its most hawkish trade adviser, Peter Navarro, in charge of securing the Covid-19 supply chain. China is not about to embrace transparency about its own demand for and production of essential goods that would enable others to have faith in its supplies. In the European Union, the Covid-19 crisis has again exposed the weakness of the bonds between its members.

The head of the WTO, Robert Azevedo, abruptly announced his resignation on 14 May. He didn’t explain his reason, but as the guardian of the global trade rules, it could well have been despair.

This article was published by The Strategist.