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Expert commentary:

Covid-19 | Protectionism

17 April 2020

The Covid-19 crisis has presented many unprecedented challenges, not least in terms of government policy and trade. What has become apparent is that governments worldwide had not considered a viral pandemic to be an immediate threat to public health and were therefore caught unprepared.

This is evident from the massive shortages of PPE and specialist medical equipment available worldwide. As there had been no immediate need for these goods until recently, there was effectively no market for them. The sub-optimal continuity planning at government level, especially in developed economies, meant that manufacturing capacity outside of China was unable to cope with demand when the need was greatest.

As the coronavirus began to gain a foothold, public health systems and government procurement agencies were left to scramble to source the equipment needed to protect health workers and the general population respectively. Globally indigenous suppliers and manufacturers have been prevented from freely selling their goods abroad. Hence, trade protectionism began.

China first initiated export controls to maintain sufficient supplies of PPE; followed by India who banned the export of drugs thought to be effective in treating Covid-19. The US President, Donald Trump, a long time exponent of trade protectionist policies, has in recent days threatened companies like the mask manufacturer 3M not to export their products.

Protectionism has also been evident within the European Union where Germany and France initially banned the sale of face masks even to other Member States in dire need within the trading block. Furthermore, the spread of the coronavirus in Europe has forced member states to introduce import controls and restrictions on the movement of people to contain the spread of the virus.
 
The European Commission has since moved to protect the integrity of the Single Market by issuing guidelines on trade within the EU in the context of the Covid-19 emergency.
 
The EU has acknowledged the necessity for restricting the movements of people but has reemphasised that the free movement of goods is a key principle of the Single Market. At the same time, the EU has imposed export controls on goods used to respond to the Covid-19 crisis to all third countries.

State Aid for many sectors has been permitted and the Commission has identified certain key industries that should be off limits to foreign investors to ensure manufacturing capability for key products remains in Europe.

There is likely to be a lasting, profound fallout from the Covid-19 crisis from a global trade perspective.
  • Will the trade protectionist trade policies seen during the Covid-19 crisis continue to affect relationships between trading partners when more normal conditions return?
  • Will the signs of fragility in EU solidarity exposed during the Covid-19 crisis reduce support for the EU and its Single Market?
  • Will Governments encourage manufacturers to diversify their supply chains away from China and guard against foreign takeover of key national manufacturing sectors in order to protect their own national interests?
  • Will the vulnerability of human workers to viral pandemics accelerate to move towards more automated manufacturing processes?
These are questions that will come to the fore in the aftermath of Covid-19. What is certain however; is that the Covid-19 crisis will set a new baseline for what normal international trade looks like going forward.

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