The COVID-19 pandemic has served to upend many long-held policy assumptions, but none so clearly as the theory that international trade rests purely on economic incentives, and that those economic incentives will always override a country’s more base instincts to act in its own interest because of the cost to global profits.
Responses from countries around the world to COVID-19 have significantly fractured this argument. It can no longer be said with unshakable confidence that nations will sidestep their own economic objectives, interests, and policies for the sake of a more profitable international economic integration.
In other words, reports that “the Westphalian notion of the self-interested state is dead” are greatly exaggerated.
Glimmers of this truth began making themselves plain when President Trump started pushing back against Chinese dominance of the U.S.-China trade relationship. China, which has cheated, stolen, and otherwise criminally vaulted itself into global manufacturing dominance, threatened to retaliate by cutting off exports of critical supplies to the United States—supplies that now only China manufactures.
Nearly a year ago, it was the rare earth minerals crucial to the production of everything from iPhones to precision-guided weapons. In April, it was the pharmaceuticals and personal protective equipment relied upon by millions of Americans, of which China controls a shockingly large market share.
The terms of our supposedly “free” trade with the Chinese are now made plain: should the United States seek for itself and its citizens better trade terms, China will hold us hostage to our own critical needs. With China, the “free” in free trade only extends as far as our government’s willingness to keep the Chinese Communists happy.
But it’s not just our adversaries. The international economic response to the onset of COVID-19 has also shaken the theory that economic interests will always trump national ones, and it has done so with remarkable speed.
In early April, India announced it would be suspend the export of hydroxychloroquine, an antimalarial drug that is a potential remedy to the virus. India manufactures most of the world’s supply of the drug, in addition to its component parts. After a call with President Trump, India agreed to export on a case by case basis—presumably for political, not economic, reasons.
By the end of April, 80 countries had adopted export bans of personal protective equipment. Seventy-two of these bans were in countries that are members of the World Trade Organization. Yet only 13 countries notified the WTO, in violation of that organization’s regulations. (Deference to international organizations also suffers in a crisis, apparently.)
Even reliable free traders such as Germany initially banned the export of protective medical equipment. Dutch multinational Phillips came under pressure from both the American and Dutch governments to keep the production of ventilators within their borders. Major food exporters restricted shipments as countries stockpiled food at home.
The European Commission, notably liberalized on trade, announced new European Union guidelines on screening foreign investments, and encouraged member states to adopt tools that “protect critical assets and technology” in “critical European companies,” specific to “health, medical research, or strategic infrastructure.”
“Openness,” said European Commission President Ursula von der Leyen, must be balanced with “the need to preserve our economic sovereignty.”
It may not be an economically rational decision to close up shop during a crisis, but it is an entirely human one.
Over the last 30 years, Western governments have built economies around the zero-stock, just-in-time supply-chain economic model. And it generally works—that is, until it doesn’t.
“The sight of many Western governments raiding literal cupboards, begging for supply, and only now improvising manufacturing,” Australian strategist Gray Connolly wrote recently, “is a sight that must never be seen again.”
Trade is a powerful economic tool that has lifted, and continues to lift, millions out of poverty. But, as the crisis has so ably demonstrated, trade is, at its root, also a political arrangement.
Our trade policy, going forward, must be tempered with a political and policy realism that acknowledges, as many of our allies and trading partners already do, that the virtue and legitimacy of a national government are to protect and provide for its citizens in a crisis. This will require rethinking, at certain times, our commitment to the multilateral agreements and bodies that have largely reflected the interests of multinational corporations, the financial sector, and other ascendant political coalitions at the expense of long-term strategic preparation.
The world’s complex supply chains will re-emerge when COVID-19 has passed. But they will and should look different. The nation-state, far from being dead, is back with a vengeance. The United States can either acknowledge that fact and craft our policies and politics accordingly, or keep persisting in the obviously blinkered belief that the self-interest of diverse national economies will never emerge.