As the global pandemic persists, there are growing concerns around the capacity for countries such as Canada and the U.S. to acquire critical medical equipment including ventilators, masks and testing kits. At the same time, there are calls to adopt protectionist trade policies, such as imposing tariffs and taxes on imports.
During this time of great uncertainty, many of us wonder: what will the future of manufacturing and international trade look like?
Recently, Walid Hejazi, an associate professor of Economic Analysis and Policy at the Rotman School, and renowned economists Daniel Trefler and Chad Bown made sense of the current economic and political climate and examined the impact of the COVID-19 crisis on international trade. In a virtual talk, called Pandemic Protectionism: The Global Trade Impact of COVID-19, they looked at the new attitudes that have emerged around global supply chains, trade, manufacturing and immigration. And they explained why we will need international cooperation to overcome the COVID-19 crisis.
Here are their responses to the major questions emerging around COVID-19, trade and the global economy:
During this time, there have been many calls to rethink global supply chains and bring production back to Canada and the U.S. — are these calls well-founded?
“In a lot of respects, it’s the wrong reaction. It can be counterproductive,” says Bown, who is the Reginald Jones Senior Fellow at the Peterson Institute for International Economics.
While many have been quick to blame personal protective equipment shortages on our reliance on foreign manufacturing, Bown points out that well before the outbreak, purchasing medical equipment (which is largely manufactured in and shipped from China) in the U.S. was becoming increasingly difficult because of the tariffs imposed by the trade war.
Additionally, the issue isn’t necessarily that domestic supply chains are more reliable. There were shortages for domestically produced products, like toilet paper, early in the pandemic, when demand exploded.
As well, during a time of crisis, foreign imports can be critical. Bown points to recent examples of American meat processing plants having to close because of coronavirus outbreaks.
“Imagine if this had happened in a facility producing N95 respirator masks, then we’d be desperate for material coming from abroad,” says Bown.
During the COVID-19 crisis, we’ve seen a surge in nationalism. Could this disrupt immigration flows?
In recent weeks, as many countries have closed borders and maintained an inward focus, Trefler has wondered whether this mindset might have a long-term impact on immigration policies. He hopes that Canada continues to encourage immigration but knows it will be challenging when the economy reopens.
“My view has always been that we need immigration in Canada, it has been extremely positive, but when we bring someone to Canada we have a responsibility to make sure that this immigrant is well-integrated into society,” says Trefler, who is the J. Douglas and Ruth Grant Canada Research Chair in Competitiveness and Prosperity at the Rotman School.
Helping immigrants settle can be a costly process. While these investments are worth it, Trefler points out that the country will not have the resources in a downturn economy.
“If we can’t roll out the red carpet, which we must for new immigrants, then we will have to do it sparingly in the short run.”
Trefler also wondered about Canada’s temporary foreign worker program. Every year, foreign workers play an essential role in maintaining Canada’s food supply by picking crops.
“If we don’t have these workers, we are going to have to rethink how we deliver food to Canadians,” he says. “That will be the first wake-up call.”
Is there any possibility that the first country to develop an effective vaccine will limit its global distribution?
“It’s obvious that no one is safe until everyone is safe,” says Bown. “That being said, there is the concern that once a country comes up with a vaccine they might hoard it.”
To prevent this type of thinking, Bown suggests that countries consider how to scale up production quickly. One country is unlikely to have all the resources necessary, such as active pharmaceutical ingredients and packaging, to mass-produce a vaccine.
“Instead of this being about which country can get there fastest, we should think about how the whole world can recover.”
—Dan Trefler, Professor of Economic Analysis and Policy
“The existence of these supply chains could be a force to leverage cooperation,” says Bown.
Trefler agrees, and he adds that many patent systems, such as the U.S. patent system, are far too restrictive. A productive approach will involve global collaboration.
“We are going to discover that to produce seven billion doses of a vaccine in short order will require resources that no single country can command, and we’ll need to recruit universities and other research institutes.”
Should Canada, or other countries, be selectively protective around personal protective equipment, ventilators and food supplies?
“One of the big concerns I’ve had, in terms of how governments and policy makers have behaved during the crisis so far, is the stunning lack of coordination and cooperation globally,” says Bown.
While Canada has made investments to international aid programs, Bown references the recent in-fighting among EU member states over medical supplies and how the Trump administration invoked the Defense Production Act.
“Right now, one of the big problems is that we don’t know anything about how much can be produced, how much is being stored and what consumption is,” he says. “Not having that information breeds distrust.”
Bown suggests global monitoring efforts, which would give countries an accurate picture of existing medical stocks, and furthermore relieve anxiety and encourage cooperation.
If we know that global cooperation is necessary for overcoming COVID-19, what are the starting points for greater international collaboration?
First and foremost, Trefler believes that the World Trade Organization needs to be fixed. More specifically, the U.S. has to come to the table to discuss its future.
Beyond that, he hopes that the conversation will shift away from blame towards constructive solutions. There has already been great work done, including the World Health Organization R&D Blueprint, research by the International Severe Acute Respiratory and Emerging Infection Consortium and Canada’s recent investment towards international research and the development a vaccine.
“Instead of this being about which country can get there fastest, we should think about how the whole world can recover,” says Trefler. “I would like to see this message serving as a launchpad for great moonshot initiatives for the elimination for global pandemics.”
Learn more about impact of the COVID-19 crisis on international trade and supply chains. Watch the recorded webinar:
More Rotman Insights → | More from this webinar series →