Trade Freely — Now, More Than Ever
Since the beginning of 2020, nearly 80 countries around the globe have restricted the export of certain medical products, including personal protective equipment and medicines. Most prominently, the United States and European Union (EU), the longtime leaders of the rules-based trading system, have withheld the export of certain supplies.
Perhaps withholding exports of medical supplies to ensure the maximum amount available for domestic consumption makes intuitive sense, but it is flawed for two primary reasons.
First, as with all trade restrictions, withholding exports will almost surely trigger retaliation by other countries. The United States depends on imported medical gear and components. As Chad P. Bown of the Peterson Institute for International Economics recently noted, Americans last year “bought more than five times the amount of the same respirators, masks, and gloves from foreign sources as the Trump administration is now refusing to sell abroad.” Such beggar-thy-neighbor protectionism will slow the needed globally coordinated response.
Not only will withholding exports trigger retaliation, widespread restrictions will fall particularly hard on poor and developing countries. Virtually no developing country produces ventilators. They are instead dependent on importing the machines. As The New York Times recently noted, while the United States has roughly 160,000 ventilators, Sierra Leone has 13, South Sudan has four and the Central African Republic has three. Without high-quality health-care infrastructure, a widespread outbreak of COVID-19 in developing countries would be a humanitarian disaster.
It’s not just export restrictions that are hampering U.S. response to COVID-19. Several import restrictions hurt, too. The United States still maintains several tariffs that are harming our response. Partnering with Ventec Life Systems, General Motors agreed to make desperately needed ventilators in its Kokomo, Indiana, plant, but is facing a number of tariffs on imported parts they need to manufacture the machines. The ventilators in question require about 700 parts, some of which come from China. As the Wall Street Journal notes, the United States in September 2018 began collecting extra tariffs on most of the ventilator parts, at a rate of 25 percent. The tariffs were instituted as part of the ongoing back and forth between Washington and Beijing.
Likewise, the Trump administration’s tariffs on hand sanitizers and disinfectants are hurting the U.S. response to COVID-19. A number of “medical-supply companies and other importers have filed dozens of requests for tariff relief,” according to the Journal. Like the ventilator parts, these tariffs were levied by the Trump administration as part of its efforts to confront China over its trade practices. In total, tariffs cover about $370 billion worth of imports from China.
To make matters worse, tariffs on certain imports from Thailand are scheduled to increase in about a week as a result of the Trump administration’s decision to withdraw the country’s eligibility under the Generalized System of Preferences (GSP). According to Coalition for GSP Executive Director Dan Anthony, products that would face higher tariffs include parts for hospital laundry equipment, single-use footwear covers, pumps, compression materials and plastic resins and other components used to make medical equipment. “With many companies revamping manufacturing processes—including shifting production to specific goods in need—the United States should not reduce sourcing options or raise costs for potentially important products,” Anthony said. At the very least, these tariffs should be delayed until the current crisis passes.
After major disasters like earthquakes and hurricanes, capital from all over the globe flows into affected countries to help mitigate the damage and begin the recovery process. Similar efforts are needed to help defeat COVID-19 and begin the long economic recovery. That’s one reason why projects like Organisation for Economic Co-operation and Development’s plan to rewrite tax rules with what amounts to a $100 billion global tax increase could not possibly come at a worse time than during the current pandemic. Constraining the flow of capital for the foreseeable future would be a mistake.
International bodies should instead be looking for ways to preserve the free flow of goods and services, in addition to capital. Recently, European Union Trade Commissioner Phil Hogan proposed a new round of trade negotiations aimed at cutting tariffs on medical equipment and supplies. Likewise, Dr. Mona Pinchis Paulsen, a scholar at Stanford Law School, recently suggested a new WTO agreement that required all members to make trade completely open to address the pandemic.
With trade restrictions proliferating and economies experiencing severe downturns, the WTO recently projected that trade volumes could fall between 13 and 32 percent from last year. The world can meet this unprecedented challenge, but only with the free flow of goods, services and capital.
Image credit: Ayman alakhras