Kimberly Ann Elliott
It doesn’t have to be this way. Early in the last global crisis, the Great Recession, the heads of state of the countries in the G-20, which had previously been a smaller summit of mostly finance ministers, met for the first time as a group to develop a cooperative response to stimulate the global economy, including pledging to avoid protectionist measures. This time around, the leaders of the G-20 had to meet virtually, given the restrictions in place to try to contain COVID-19, but they notably declined to condemn export restrictions, saying only that measures should be “targeted, proportionate, transparent, and temporary.”
Given the utter lack of leadership in the current crisis, it is not surprising that barriers to medical exports, and even some staple grains, are growing, complicating an effective pandemic response and putting countries that rely on imports in danger, particularly developing countries with weak health care systems. Having blown opportunities early on to build up the U.S. national stockpile of protective equipment and ventilators, President Donald Trump joined the global free-for-all in a big, and hugely disruptive, way last week by ordering restrictions on the export of vital N95 respirator masks.
The good news is that a growing number of countries are realizing that import tariffs on medical supplies and equipment don’t make a lot of sense in a pandemic—if they ever do—and are cutting them. Prior to the coronavirus outbreak, China, India, Russia and a number of countries in Asia, West Africa and Latin America had tariffs of 10 percent or more on imports of disinfectants and similar products. Those countries, along with Canada and Mexico, imposed similarly high taxes on imports of protective garments for health workers, while the European Union had tariffs of 5 to 10 percent.
According to Global Trade Alert—a network of researchers around the world tracking actions that either increase or lower barriers to trade—many of those countries are now suspending these tariffs, at least temporarily. The United Kingdom waived import tariffs early last week on protective equipment, testing kits and ventilators, followed by the EU later in the week. According to the latest data available on the group’s website, Turkey and a handful of countries in Latin America have also taken steps to reduce tariffs on some medical imports in response to COVID-19. The U.S. suspended tariff increases on some imported medical supplies from China that it had imposed in recent years as part of Trump’s trade war. But apparently that did not include ventilator parts, which still face an additional 25 percent tariff if they come from China.
Meanwhile, as the virus spreads, so too are export restrictions, particularly on masks, gloves, gowns and other protective equipment. According to Global Trade Alert’s most recent report, 54 governments had imposed some form of export restrictions as of March 20, including the EU and India, a major exporter of many pharmaceuticals. By April 3, that number had risen to 69 countries with a total of 87 restrictive actions. Some major food-producing countries have also begun limiting exports of wheat and rice, including Russia, Ukraine and Vietnam.
China, a major producer and exporter of many of the items currently in demand, has strongly denied media reports that it had banned exports of medical equipment or supplies during the height of its coronavirus outbreak. Of course, its own demand skyrocketed when the epidemic broke out there in January. Beijing did issue a number of force majeure certificates allowing companies to break previously negotiated contracts. Surprisingly, then, recent analysis of trade data by Chad Bown at the Peterson Institute for International Economics shows that Chinese exports of personal protection equipment dropped by only 15 percent in the first two months of the year, less than its export of all other products, which fell by 17 percent.
Facing another global crisis, the U.S. and the rest of the G-20 should focus on how to expand the pie, not fight over who gets the biggest slice.
Rather than sharply reducing exports when domestic demand surged, China sharply increased production, and has continued to do so as this global pandemic grows. The New York Times reported that Chinese production of masks is 12 times higher than before the coronavirus struck. Chinese factories are also reportedly running 24/7 to supply ventilators to the world, though their output is still just a fraction of what is likely to be needed.
Until recently the U.S. had not limited exports. Indeed, Trump has resisted pleas from state and local officials to have the federal government take a bigger role in ensuring that their hospitals have adequate supplies of ventilators and protective equipment. The Trump administration did not take advantage of the opportunity in January and February, before the epidemic became a pandemic, to rebuild national stocks of critical supplies. Trump also hesitated for weeks to use the Defense Production Act to order American companies to prioritize production of needed medical supplies.
Then, last Friday, the 3M Company, one of the major global producers of N95 respirator masks that health care workers so desperately need, revealed that the administration had requested that it stop exporting the masks to Canada and Latin America. Trump followed by saying that he was going to sign a formal order prohibiting exports of masks and other medical supplies. Though the details remain murky, Germany claimed that a shipment of N95 masks it had ordered from a 3M plant in China had been confiscated in Thailand and diverted to the U.S. Brazil and France also claimed that orders they had placed had been redirected to the U.S. after Washington offered higher prices.
These actions may seem reasonable in the face of the current crisis. But we’ve seen them before, and the results aren’t pretty. When food prices spiked in 2008 and 2009 amid the global financial crisis, a number of major food producers restricted their exports. Researchers found that export restrictions in one country triggered similar actions elsewhere, resulting in even higher global prices and severe impacts on the most food insecure countries. While the restrictions slowed domestic price increases for consumers in the short run, they also had the effect of dampening incentives for farmers to ramp up production in the longer run.
Trump’s aggressive actions on respirator masks and other medical equipment also risk retaliation from the rest of the world. The lack of coordination, as with the food price spikes during the Great Recession, is already driving up prices and costs, within the U.S. as well as globally. In the longer run, American exporters could suffer because other countries will no longer regard the U.S. as a reliable supplier.
While no doubt politically difficult, what is needed now is global cooperation and coordination to maximize production and try to get critical supplies to where the need is greatest. Many companies are stepping up and switching from producing t-shirts and other clothes, for example, to surgical masks and gowns. Governments can encourage those shifts in production by guaranteeing purchases for firms that invest in making them and supporting those companies in complying with health and safety regulations with which they are likely unfamiliar. Trump has that authority if he actually used the full power of the Defense Production Act consistently and coherently, which he still won’t do.
Facing another global crisis, the U.S. and the rest of the G-20 should focus on how to expand the pie, not fight over who gets the biggest slice.
Kimberly Ann Elliott is a visiting scholar at the George Washington University Institute for International Economic Policy, and a visiting fellow with the Center for Global Development. Her WPR column appears every Tuesday.
No comments:
Post a Comment