Coronavirus and Trade : The Indicator from Planet Money The coronavirus pandemic may have pushed trade wars off the front page, but such wars are still with us — and they're complicating the world's ability to fight the virus.

Coronavirus and Trade

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Hey, everyone. Cardiff and Stacey here. This is THE INDICATOR FROM PLANET MONEY. Because of the global coronavirus pandemic, global trade has collapsed. To find out exactly how much it has collapsed, we called up trade economist Chad Bown and asked him.

CHAD BOWN: So honestly, I'm a little embarrassed to say this as a trade economist, but we don't know.


We don't know.

BOWN: We don't know.

GARCIA: How can we not know?

BOWN: Well, I'm going to blame the data.

VANEK SMITH: The data ate my homework (laughter).

GARCIA: Yeah, sure - the big data letdown. Yeah.

VANEK SMITH: (Laughter) I know - that data.

BOWN: (Laughter).

GARCIA: Chad says, look; it just takes time for statistical agencies to collect all that trade data. But we do have some early hints. Exports out of China, for example, which was the first country to deal with the pandemic, fell 17% in the first two months of the year.

BOWN: But really, that's just going to be the tip of the iceberg. It's going to be much, much bigger than that.

VANEK SMITH: The world is hunkered down right now, staying at home, trying to limit the spread of the virus. And a lot of businesses are closed, so there's just less demand overall for stuff. And this applies to stuff that gets traded across borders, Chad says. For example, because people are not commuting as much, they're probably not buying new cars.

BOWN: But cars are a huge amount of international trade. And so there's just going to be a dramatic fall-off there.

GARCIA: But the way in which less trade could affect our daily lives is if there are shortages of items during the time that we are living in this new reality - this at-home reality. And those shortages could show up in unexpected places. Like, let's say you want to buy a specific kind of home exercise equipment, like an elliptical, so you can work out while you're stuck at home. Well, if there is less trade overall, there will be fewer container ships carrying goods from country to country.

BOWN: And if the container ships aren't flowing across the Pacific or across the Atlantic anymore as frequently, then they're not going to, you know, have as much space to put those kinds of pieces of workout equipment on them. And what that means is then there's just sort of less supply, and everybody wants a piece of that workout equipment right now. And so - that kind of thing. You might see huge spikes in prices for certain products simply because there's less of it that's actually tradable right now as well.

VANEK SMITH: And some of that doesn't seem like such a big deal, right? So you have to wait a couple more months for your ellipti-trainer (ph). But there is one hugely important area where global trade has become a source of controversy because of coronavirus and where there are tragically big shortages. And that is the importing and exporting of medical equipment, which hospitals and doctors and nurses need to treat patients with coronavirus right now.

GARCIA: And the controversy has revealed a deep tension in the way that countries are now thinking about trade. Should countries rely on themselves and be prepared to go it alone in a crisis if they have to, or should they rely on other countries - their trading partners - and hope that a fragile global trading system holds up when a crisis hits? More on these crucial questions right after a quick break.

VANEK SMITH: Two years ago, the trade war between the U.S. and China started intensifying. The U.S. raised tariffs, which are just taxes, on a lot of goods imported from China, including medical equipment, says Chad Bown.

BOWN: So that meant ranging things like personal protective equipment - the masks and gowns and gloves that doctors and hospitals need - all the way up to CT scanners and X-ray equipment, thermometers - lots and lots of stuff that it turns out today are quite important in the COVID-19 fight.

GARCIA: Chad says the result of those tariffs was predictable. Tariffs made that medical equipment more expensive, so hospitals and medical providers in the U.S. bought less of it.

BOWN: If there had never been the trade war with China, I think we would have much more access to stockpiles of some of this equipment that we need, obviously, to be able to fight the pandemic. We'd also be in better relations with China. And it - this is really important because China supplies nearly half of what the world trades in a lot of this equipment.

VANEK SMITH: And yet, as if to confirm Chad's argument that more trade with China right now would be good, last month, the Trump administration quietly gave exemptions to the tariffs on medical equipment - things like masks and gloves and sanitizing wipes.

GARCIA: And China has actually increased production of medical equipment, and it has encouraged its factories to sell more to the U.S. and to other countries as well. And that is happening. The U.S. has already started importing more equipment from China. So at least when it comes to fighting the virus, there are some signs that the two countries are cooperating.

VANEK SMITH: Many other countries throughout the world, however, are taking a different approach to exporting medical equipment and medicines to their trading partners. They're either banning these exports or, in some cases, limiting them. These countries are worried that they will not have enough equipment and medicine for themselves. And therefore, they think, you know, it doesn't make sense to be exporting this equipment to other countries right now.

GARCIA: But Chad says this way of thinking is dangerous. He's worried that this approach will leave every country worse off.

BOWN: So let me give you a specific example. There was a proposal this weekend in the United States that potentially restrict the exports of masks and some of this protective gear where there are shortages in the United States right now in hospitals. The government and the Trump administration said, we don't want to export this anywhere else, including Canada and Mexico.

But we're really reliant on them for other things that we need to fight COVID-19. We import a lot of hand sanitizer from Canada, that medical, you know, headgear that doctors need to wear to keep safe. From Mexico, we buy face shields and the gowns that the doctors and nurses have to wear. And so if we were to cut this off from them, they would presumably feel pressured to cut the same thing off from us, and everybody ends up losing.

VANEK SMITH: In fact, Canadian Prime Minister Justin Trudeau has suggested that Canada might retaliate if the U.S. restricts sales of masks to Canada. Meanwhile, though, the countries of the European Union are limiting sales of equipment to developing countries, and that could make it a lot harder for those countries to slow down the spread of the global pandemic.

GARCIA: And Chad says if your country closes off exports to other countries, that also leads to bad incentives for the factories in your own country as well.

BOWN: But business is told that no, you can't sell in foreign markets. You know, you're only - you can only sell it here. That does crimp their ability to make investments, to hire workers and maybe even to set up their plant in the United States in the first place. Maybe they choose to set it up somewhere else where they wouldn't have to face those sorts of worries of not being able to export their goods.

GARCIA: In other words, all these countries throughout the world could end up with fewer of the goods they need in the emergencies when they need them. All the same, this idea does not contradict the argument that a single country, like the U.S., should still maybe not overly rely on one single trading partner, like China, to get what it needs in a crisis, especially if that other country is a geopolitical rival, as China is to the U.S. Chad acknowledges all this, but he says there are also dangers in the U.S. relying too much on itself and trying to make everything it needs inside its own borders as well.

BOWN: Suppose we had set up the plants to make all of this equipment just in the spot where the biggest outbreak hit. And so workers, just to stay safe - they couldn't go into their jobs. They couldn't actually show up at the plant to be able to make this stuff right when they need it. We would desperately at that moment in time want to be able to rely on other countries to get it.

VANEK SMITH: So, Chad says, it is a false choice between going it alone versus relying too much on a few other trading partners. What companies and governments should try, he says, is to diversify the number of countries where they get the necessary products from.

BOWN: I do think that what this experience will have taught us is companies and governments probably need to build in some redundancies to their supply chain - right? - to actually be able to source from more places than originally, not be as lean, keep more in stock, maybe have multiple suppliers in different countries of the same product. So I don't think trade will be the same as it was before. But I'm hopeful that trade will still be a really big part of allowing countries to be able to prepare for these kinds of hopefully rare but very tragic occurrences when they actually happen.

GARCIA: What Chad is saying is that a country should not rely entirely on itself, but nor should it rely too much on a small list of other countries or even on one other country. And that's a lesson that policymakers can take from this crisis to prepare for the next one.

This episode of THE INDICATOR was produced by Camille Peterson and fact-checked by Brittany Cronin. The editor of THE INDICATOR is Paddy Hirsch, and THE INDICATOR is a production of NPR.

VANEK SMITH: If you're looking for more news about coronavirus, NPR has a new daily podcast for just that. It's called Coronavirus Daily, with new episodes every weekday in the late afternoon.

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