A while back I commented that one of the side effects of the COVID-19 outbreak might be the collapse of the free trade system that envelops most of the world, as …
Free trade tends to lead to specialization on a national level, as countries who are better at, or have more appropriate resources, concentrate on doing what they do well for export; but other products that don’t fall into that specialization are neglected – after all, you can use your profits from the specialization to buy all that other stuff. Or, more bluntly, those domestic industries who find they can’t compete with the foreign competitors get wiped out, while you wipe out the foreign competitors who can’t keep up with you. This all works out great for those who are in the right industries, or cut sweet heart deals with the government to get bought out as they find they can’t compete. And everyone important is happy in both the public and private sectors.
Right up until economic links are cut for non-economic reasons. While war is a popular reason for terminating those links, it’s also something that we can, with some effort, control, either through negotiation, or by kicking out the obstreperous individuals.
But when it comes to disease, we’re not nearly as much in control. Sure, we can and do work on it, trying to develop vaccines and cures, but none of this is guaranteed, and, barring unexpected miracles, it takes time.
Andrew Sullivan is reporting that national entities are moving along this path in the first part of his weekly tri-partite diary entry for Intelligencer:
The nation-state was beginning to reassert itself before, but COVID-19 has revealed its indispensability. Europeans realized, if they hadn’t already, that a truly continental response was beyond the E.U. Borders were suddenly enforced, resources hoarded by individual nations, and the most important decisions were made by national governments, in national interests. Americans, for their part, saw their own dependence on foreign countries, especially dictatorships, for core needs — like medicine, or medical equipment — as something to be corrected in the future. Japan is now spending a fortune paying its own companies to relocate from China to the homeland.
It’ll be interesting to see how this plays out. Economic nationalism as the pendulum swings? Or identification of critical industries, followed by legislation requiring their use of domestic rather than foreign parts?
Will the international shipping industry take a hit? Almost certainly if it’s economic nationalism; it’s not so clear if the impact is selective.
And what will this mean for such countries as Vietnam and India, which struggle to catch up with the more advanced nations? I see free trade as a lifeline for them, a chance to learn how to organize and take advantage of the opportunities that come with cheap labor. If that gets shutdown, what happens to them?
Free trade was advertised as the way to accelerate economic progress and wealth, and I think most economists would agree that it has achieved that. However, as countries are beginning to recognize, it also brings vulnerabilities to those that sup at its table. Is an uncoordinated decision about to be made to slow economic progress in order to better manage world wide natural crises?
Keep an eye out.
