First posted on:
Remarks at a webinar hosted by the Korean International Trade Association, 27 May 2020 (published on the WTO website here)
The pandemic is an unprecedented challenge in our time not just to world health but to the global economy.
National governments, pressed for a response, enacted both trade restrictions and import liberalizing measures with respect to medical supplies.
Fortunately, in terms of numbers, the liberalizing trade measures have exceeded those restricting it.
The WTO Secretariat has obtained notifications of measures from its Members and published information on its website. This provides essential transparency for planning both by national policy makers and for businesses.
The WTO has also alerted members to the effects of the pandemic and the responses to it, by issuing a Trade Forecast. Due to the direct effects of the pandemic, depressing both supply and demand, as well as to a much lesser extent trade measures, the WTO has projected that global trade will decline by 13% to 32% this year.
Keeping trade open in the face of the pandemic has been the subject of trade initiatives led by Singapore, New Zealand, Canada and Switzerland. These initiatives have been circulated to the 164 Members of the WTO and have gained additional adherents.
The evolving shape of world trade, including global supply chains, will be shaped primarily by how businesses view future economic conditions. There will be some limited on-shoring to the extent that government policies will be available to support this reflow from an era of globalization. But government budgets will already have been strained by fiscal measures to fight the pandemic. The availability of funds to support on-shoring is likely to be limited to targeted efforts, primarily perhaps for medical supplies. And even there, government stockpiles (with domestic sources preferred) may be preferred to direct industrial support. The products effected and duration of the support may be limited. On-shoring is likely also to be affected by tax measures designed to restore government finances.
Supply chains will also be affected by some likely diversification among foreign suppliers. But again, this will be limited by economic viability. Businesses can plan for contingencies but in the end, must preserve revenues and profits.
The leanest of just-in-time supply chains may be a level of efficiency that can no longer be afforded. So, inventories will rise but again be constrained by the economics of running a business.
Outside of supporting the production and stockpiling of medical supplies and vaccines, technology and market forces will be much greater factors determining trading patterns than government policies, including the use of regional trade agreements. In an extreme emergency, even membership in a customs union did not prevent some individual national actions which were at odds with the ideal of a single market.
Regional trading arrangements can be useful for exploring paths forward for rule-making where progress would be more complicated to achieve on a global basis. In addition, regional integration can be productive and should be fostered. Nevertheless, in terms of total trade flows, sub-multilateral agreements are not determinative. Businesses still have to serve markets wherever they are located and will continue to need to reach out beyond the regions in which they are located.
As a WTO official, my primary concern is with how well-prepared the multilateral trading system is for the challenges that it now faces and that it will face. For the World Trade Organization, there are three classes of challenges:
- first, dealing with the trade aspects of the pandemic;
- second, discerning trade measures that can aid in the economic recovery; and
- third, planning systemic reforms.
To view the original blog post at the VOX CEPR Policy Portal, please click here