Is it time for deglobalisation, some ask?

Has a de-globalisation trend started? Are we back to days of enhanced protectionism? Is "my country first" policies going to take over? Are global value chains going to be more regionalised or local? Is it the end of the peak global trade order that saw the world "flattened"?

In this piece in PIIE blog, Douglas A Irwin tends to suggest that the pandemic would lead to a situation of localisation and looking inward. The time of deglobalisation has begun.

Experience also suggests that fear leads countries to turn inward. Many countries are now rethinking trade dependence. Phil Hogan, the European Union’s commissioner for trade, has stated, “we need to think about how to ensure the EU’s strategic autonomy.”[6] Scott Morrison, Australia’s prime minister, told parliament: “Open trading has been a core part of our prosperity over centuries. But equally, we need to look carefully at our domestic economic sovereignty as well.” Japan has also begun investigating how to break its supply-chain dependence on China and produce more at home.

These cycles of globalisation and deglobalisation will continue to exist as long as nation states with local constituencies exist. The important question is whether open borders or more protected environments provide the opportunities and avenues for populations to improve their standard of living.

What is essential during a pandemic? Is it all about trade?

Well, a few blogposts back, I had written about the inverse exception.

Abhijit Das has raised a very pertinent question about the misuse of this free flow of medical essentials in this item:

The ongoing Covid-19 pandemic has highlighted the need for countries to be self-sufficient in products that may be required for current and future medical emergencies. This has become a stated goal of even developed countries, such as France. Given this imperative, if India and some other developing countries seek to create a manufacturing base for medical products, then the nascent industry will require tariff protection for a few years. The joint proposal will eliminate this possibility. Developing countries would perpetually remain at the mercy of firms in the developed countries for meeting their needs in this area, during the Covid-19 pandemic and thereafter, as well.

And on the misuse

At a time when the world is grappling with death, destruction and desolation, it is shocking that responsible countries are eyeing business opportunities in products such as ice creams, cut flowers, wines etc, which are not even remotely linked to combating Covid-19. This completely unmasks the true commercial intent of the joint proposal. 

Some food for thought?

Global Value Chains in times of crisis

We all know about the importance, growth and dynamics of Global Value Chains. AN interesting question now being asked is due to the Covid pandemic and the large scale disruption of GVCs and movement of goods across borders, should there be a regionalisation or nationalisation of GVCs? Should we look more inward.

A WEF blogpost on this seems to differ. The impact of the pandemic on global value chains has been brought out in detail. However, whether it should lead to nationalisation of supply chains is sought to be answered thus:

If the global economy is to avoid prolonged economic distress, a coordinated policy response, as advocated by the United Nations and other multilateral policy institutions, serves as possibly the most promising path out of a looming economic crisis. So far, however, the discussion around current and future policy responses has seen increasing calls for national re-examination of established economic models, in particular with respect to the international production of goods. In a number of developed countries, leading government politicians have called for a rethinking of their companies’ approaches to international outsourcing of production, with a view to avoiding future supply bottlenecks while increasing resilience of supply chains. For example, the French Minister of Economy and Finance has called for EU governments to rethink their approach to value chains in order to assure “sovereign” and “independent” supplies. In the meantime, this view has gained further traction among some of the other high-level policy makers and commentators.

These calls for “sovereign” or “national” supply chains suggest that companies ought to re-think the spread of production across the globe. In the past, outsourcing was in many cases driven by multinational firms’ desire to optimize their operations by minimizing costs, reducing inventories and driving up asset utilization. If anything, COVID-19 shows that it may perhaps be too simplistic to base decisions about production locations solely on such easily observable economic factors. Many companies may not fully appreciate their vulnerability to global shocks through their supply chain relationships and the costs this imposes. This may no doubt be reflected in companies’ future risk assessments before they decide to relocate production or when they re-consider their location choices.

A substantive nationalization or regionalization of supply chains, however, has the risk to further reduce diversification of suppliers in the world economy and reduces opportunities for developing and emerging economies, especially those outside Southeast Asia, to benefit from GVC-associated capital flows and access to international markets, human capital and knowledge. Such a development will almost certainly deal a significant blow to developing countries' industrialization efforts and impede the socio-economic progress that has been recorded in many developing regions over the past years. The disruption of GVCs due to COVID-19 may therefore leave as a longer-term legacy: a significant reduction in developing countries’ potential to industrialize through linking into GVCs for many years to come. The COVID-19 pandemic calls for increasing our effort towards strengthening multilateral approaches to policy making and assisting countries in opening up other ways to enable inclusive and sustainable industrial development.

Whether national governments will become more insular after the pandemic plays out is anyone's guess. The interdepenence of the global economy and the impact this has on local economies during medical emergencies has just played out. Whether the reaction to look inwards will be a passing phase or a national strategic rethink is debatable.

An idea of an inverse exception in times of Covid

A thoughtful piece in the Opinio Juris by Mona Pinchis on "Inverse Exceptions" in WTO law. Exceptions in WTO law refer to provisions that permit WTO Members to deviate from WTO provisions under certain circumstances. Article XX of the GATT 1947 provides for general exceptions where Members can adopt measures necessary to protect public morals, human health amongst others. Article XXI provides for a security exception wherein, inter alia, Members are not prevented from taking any action which it considers necessary for the protection of its essential security interests.

Reports suggests that many members have undertaken measures that have constricted free trade during the Covid pandemic. Many of these measures may find their justification under Article XX of the GATT.

However, Mona Pinchis draws us to a counter-factual. Should times of medical emergencies prompt an "inverse-exception" rule. This would mean Members would agree tono restrictions in the trade of medical equipments, medicines and other commodities related to the emergency. A provision mandating members to keep their markets as well as measures non-restrictive during this time?

The idea of an inverse of the GATT exceptions (‘Inverse-Exceptions’) acknowledges the global nature of COVID-19. There are not multiple crises occurring right now. There is one. To avoid international trade slowing to a standstill due to a rapid rise in trade barriers, invocation of Inverse-Exceptions would still come from a single WTO Member. However, it would require all Members to acknowledge that there is a need for immediate trade liberalization due to an overwhelming global concern. That is, it is not just a national security or health concern: it is a concern of humanity.

Pandemics throw up challenging questions for countries battling them in terms of administrative and governance questions. Governments are answerable to their population in terms of how they cope with the disaster and what best they can do in times of crisis. The inverse-exception would need to pass the test of governments being able to convince their constituencies that it is in their interest that trade is free. This may or may not be akin to selling the idea of free trade in times of a depression. However, the ultimate test is whether national governments would be able to pass that test.

Covid, trade and what is in store

I have been contemplating a post in these challenging times. There is no news other than Covid. Considering this blog is on international trade, what better than a post on Covid and trade.

I found this illuminative trade talk on Covid and trade in the Peterson Institute for International Economics blog. Chris Rogers explains with data the various consequences on Covid on trade with this conversation with Soumaya Keynes and Chad Brown. 

Some learnings, obvious and some educative:

1. Covid will have a lasting impact on supply chains. Countries will begin thinking of diversifying their supply chain geographies so that they are not impacted by such eventualities 

2. Air freights have increased and a shift to air cargo supplies

3. 1/3rd of ventilators to the US comes from the EU

4. Global trade has collapsed and there is probability that in some economies reliant on exports this will fall by 40%

5.Major interruptions in supply chains especially in automative and electronic sectors

6. Inadequacy of services trade data - estimated at best as compared to goods trade. Services trade is very flat in these times.

Plenty more on data, trade and impact of Covid. Do hear their entire conversation.