The COVID-19
pandemic has neatly illustrated the multi-faceted ways in which globalization touches our lives. The deep interconnections of travel, trade and financial flows that characterize our era allowed the novel coronavirus and its associated economic shocks to spread around the world in a matter of weeks.
Earlier pandemics took months, even years, to go global.
Yet, globalization was also at the heart of why this
virus was met with vaccines in record time. Scientists
were able to share ideas and technology across
borders, backed by public and private funding for
research and development. As the new vaccines
proved to be safe and effective, supply chains cutting
across hundreds of sites in a dozen or more countries
came together to provide the specialized inputs and
capital goods needed for vaccine production on a
large scale – all within a year.
Nevertheless, access to COVID-19 vaccines remains
highly inequitable. At the time of writing, vaccination
rates in Africa and in low-income countries remain
in the single digits, while in rich countries, and,
increasingly, in upper middle-income economies,
large shares of the eligible population are vaccinated,
with individual hesitancy being the main obstacle to
universal coverage.
Global production of COVID-19 vaccines is
projected to reach 12.4 billion doses by the end of
2021 – a dramatic increase compared to the world’s
annual pre-pandemic production capacity of 5 billion
doses for all vaccines – but this is still not enough,
especially as evidence of waning immunity is leading
more and more countries to pursue booster shots.
Trade will continue to be central to getting the
vaccine production and distribution we need, which
are a prerequisite for a strong, inclusive and lasting
economic recovery. Looking to the future, trade will
also be at the heart of building a more decentralized
and diversified production base for vaccines,
therapeutics and diagnostics that would be more
resilient in the face of future pandemics.
COVID-19 took us by surprise, despite many
predictions that the world was overdue for a
respiratory virus pandemic. Other risks are more
firmly established on our radar screens, from climate
change to natural disasters. Here too, trade can help
us better prepare for, and respond to, the eventual
shocks associated with those and other risks.
This year’s World Trade Report reviews the role of
trade, trade policy and international cooperation in
building and supporting economic resilience in the
face of natural and man-made disasters, including
the COVID-19 pandemic. It finds that today’s highly
connected global economy is more exposed to risks
and vulnerable to shocks, from supply chain cut-offs
to infectious disease outbreaks, but that it is also
more resilient to shocks when they do strike.
The report finds that trade cooperation is instrumental
in improving resilience to shocks, because it
promotes greater diversification of products,
suppliers and markets. It points to ways in which
trade can sustain economic resilience for households,
firms and governments, particularly when supported
by complementary domestic policies and effective
global cooperation.
Anticipating, evaluating and managing risks is key to
preparing for shocks. Diversifying supply sources and
destination markets are two strategies for doing so,
as is building inventory stocks of critical inputs. Other
risk reduction and early warning strategies, such as
weather forecasting, insurance, telecommunications
and health services, can be enhanced by greater
trade in services.
When a shock hits, trade can help to mitigate the
impact by allowing households and businesses
continued access to goods and services. During the
COVID-19 crisis, despite some pandemic-related
export restrictions, trade helped countries meet
the skyrocketing demand for medical products. In
2020, even as the value of global trade declined
by 7.6 per cent, trade in medical supplies grew by
16 per cent. Trade in personal protective equipment
increased by nearly 50 per cent – and by
480 per cent for the textile face masks that have
become so familiar to all of us. Trade in agricultural
products remained stable in 2020, preventing the
health crisis from becoming a food crisis.
Once shocks begin to stabilize or dissipate, trade
can accelerate economic recovery: on the import
side, by facilitating access to competitively priced
intermediate products and services; and on the export
side, by enabling access to foreign demand. For
poorer economies with limited fiscal space, trade is
particularly important as a driver of economic growth.
The early stages of the pandemic were marked by
concerns that global value chains (GVCs), especially
those with high levels of dependency on particular
nodes or countries, could break down and become
a new source of cascading shocks. Although there
were instances of factory closures in one part of
the world forcing assembly lines elsewhere to stop
operations temporarily, GVCs have thus far been
generally resilient, and have helped to drive the
current economic recovery. Merchandise trade has
rebounded faster than gross domestic product,
propelled by fiscal and monetary stimuli, along with
governments’ broad restraint in the use of trade
protectionism.
However, coupled with investment cutbacks in
early 2020 by businesses anticipating a prolonged
downturn, the unexpectedly sharp rebound in
demand, further ramped up by business inventory
accumulation and a shift in spending from curtailed
in-person services to consumer goods, has led to
supply chain bottlenecks and disruptions. These
have been exacerbated by extreme weather events,
accidents like the ship that blocked the Suez Canal,
and COVID-19-related shutdowns in important ports
and production locations. In spite of all these factors,
the resulting transport cost increases and delivery
delays appear likely to prove transitory.
Trade, economic growth and risk management are
mutually supportive at the country level as well. GDP
recovery has been faster in economies with strong
pre-pandemic trade ties to countries with fewer
COVID-19 cases.
International trade can, however, under certain
conditions, propagate shocks, such as financial
crises, international transport disruptions, supply
chain cut-offs and diseases. For example, trade-
dependent, relatively undiversified economies have
been hit particularly hard by the COVID-19 pandemic.
Better access to COVID-19 vaccines is therefore
essential to ensure a rapid economic recovery,
highlighting that vaccine policy is trade policy, and
vice versa.
Pandemic-related economic stresses have prompted
calls in some countries to re-shore production,
promote self-sufficiency, and unwind trade integration
with the goal of building a more “resilient” economy.
This report argues that such strategies are unlikely
to be effective: national self-sufficiency would
be expensive and inefficient, or even technically
impossible in some sectors. Reduced exposure to
shocks emanating from other countries would be
replaced by increased vulnerability to domestic
shocks – this time without the resilience mechanisms
offered by international trade. Conversely, increased
trade integration has been associated with decreased
macroeconomic volatility.
While the WTO already contributes to economic
resilience in important ways, it can and must do
more, as we confront a future of increasing natural
and man-made risks and disasters. As we have seen
with pandemic-related trade measures, enhancing
transparency and predictability is important to provide
policymakers and businesses with the information
they need to make informed decisions. Actions to
keep key products moving freely around the world
would foster resilience, as currently illustrated
by the need for bottleneck-free supply chains for
COVID-19 vaccines. Ongoing negotiations at the
WTO on services, investment, agriculture, electronic
commerce and micro, small, and medium-sized
enterprises could create further opportunities for
inclusive trade and diversification, making economies
more resilient in the future. The WTO’s upcoming
12th Ministerial Conference, from 30 November to
3 December 2021, offers an opportunity for members
to advance on these fronts. Reinvigorated international
cooperation, not a retreat into isolationism, is the
more promising path to resilience.
Comments
Post a Comment