Role of Trade in the World’s Recovery from the COVID-19 Pandemic

 

Introduction

Should governments have restricted trade to enhance domestic supply of personal protective equipment during the Covid-19 pandemic?

During the early days of the coid-19 outbreak there were massive disruptions in the supply chain that caused a global shortage in the supply of protective equipments. Countries like china which are huge exporters of the products like surgical masks, respirators, gloves and hospital gowns reduced exports and also began importing. The United States also having major companies that supply these products worldwide also began experiencing shortages. Notably, many companies resorted to their domestic supplies to meet the rising demand of the medical products due to the increasing number of Covid 19 patients (Bown, 22). Most developing countries did not have many established manufacturers to produce this product since they initially relied on imports. Hence, medical research companies, private investors and the government had to develop the medical equipments locally by combining resources. The post Covid 19 period indicates that many nations across the world have increased their production capabilities in the medical field and hence domestic supply almost meets the demand. Therefore, during the Covid 19 period governments should have adopted restricted trade to meet their demand.

Notably, trade restriction, specifically in personal protective gears would have ensured that the major exporting countries like chain and United States would meet their local demand. On the other hand, the restriction would have enabled countries that import such products to develop their manufacturing capabilities to meet their demand. It is evident that the Covid 19 period influenced numerous policy making decisions across the world, majorly because the pandemic had significant social and economic impacts. This was a necessary measure to boost the supply of the medical equipments because major suppliers like china did not have the capacity to export. The corona virus began in Wuhan china, and the outbreak became a huge health concern that the country had to shut down some parts of the economy (Magablesh, 2021). The rising numbers of causality meant that the country could not export the personal protective equipment (PPE) as usually. Nations that dependence on china had to find alternative sources of supply, but the supply chain network for the PPE was significantly affected when the virus spread across the world. Therefore, an effective measure that some nations took included promoting local production. There nations that adopted trade restrictions in as way of promoting domestic supply and also because they could not get enough supplies from the international markets.

“China monthly export and import volumes of PPEs (million kgs) from 2018 – 2020”

Covid affected the international markets for PPEs adversely, for example china imported more than it exported which led to a huge disruption in supply chain networks. As per the figures above china exported plummeted in February 2020 which mimicked a similar seasonal reduction that occurred in 2018 which was associated to the Chinese Lunar Year. Notably, this is a huge i9ndication that the Covid 19 pandemic was enough justification for governments to adopt restricted trade to promote domestic supply both in the pandemic period and after (Bown, 2022). This could help countries cushion themselves against shortages of PPEs that come about due to supply chain disruption that occur due to pandemics. The development of the domestic manufatciri9ng sector due to governments adopting restricted trade in the production of PPE is also essential in economic recovery.

Is re-shoring the best approach to deal with shocks like Covid-19 or similar events?

Nations across the world have adopted off-shoring as s trade strategy whereby they move migrate manufacturing plants from developed economies to developing or underdeveloped economies. The aim is usually to enjoy the low cost production whereby they get to enjoy cheap labour, availability of raw materials and lower production cost. Notably, this was an effective trend up until the covid-19 pandemic occurred. The interruption of trade supply chain networks were adversely affected due to lockdowns, trade restrictions and partially closure of businesses. This meant that nations could not even get their product that they have produced in other nations, hence leading to shortages while the demand continued to increase (Vaughn & Weldzius, 2021). Notably, Covid 19 disruption in the supply chain networks has led many nations to rethink this trend, and the result is that some nations have begun re-shoring their manufacturing plants that have been offshore. The occurrence of the Covid pandemic exposed major vulnerabilities in the supply chain system, and this is because the effects touched on many nations. Hence, this is wake up call for nations in terms of policy making and preparedness for unexpected shocks of any magnitude.

Re-shoring is a response to the possible vulnerabilities that exists in global supply chain systems; hence it is an effective government policy that can get implemented to help in absorbing future economic shocks. The initiates can vary in nature, for example, re-shoring can include provision of information, and technical advice to organizations. It can also include provision of financial assistance to the re-shoring exercise, for instance, subsidies, tax credits and reduction of statutory deduction imposed on organizations. This is an approach that is effective and has been effectively utilized by some nations and the results have been encouraging. A look at the Germany’s industrie 4.0 initiative indicates that it is designed to develop and strengthen the domestic manufacturing sector (Magablesh, 2021). This program indirectly promotes off shoring, hence this proves that re-shoring is an effective approach that nations can adopt to enable economic recovery in the post Covid period. It is also a good policy to prepare nations for any economic shocks and supply chain disruption similar to the resulting effect of covid-19 pandemic.

There are many reasons that can make a country adopt the re-shoring policy, but the major one is the vulnerabilities in the supply chain network. Off shoring leads to overreliance on some trading partners, hence when a disruption occurs, the nations get affected significantly (De Ruyter, 2020). Re-shoring promotes diversification in the domestic market, hence there reduced reliance on external trade partners. It also ensures that the supply chain networks are shorter, unlike when a country has off shored most of its major manufacturing industries. Notably, a shorter supply chain implies reduced vulnerability and in the case of an economic shock, it is easier for the government to navigate because the government is only dealing with domestic trade partners (Vaughn & Weldzius, 2021). Studies also indicate that there is a huge correlation between the probabilities of countries adopting the re-shoring approach and the dependency on single external business partners. For instance, Japan has a high depends on countries like china, United States and Taiwan for its research and development as shown in the figure below. This explains the why there is a high supply chain vulnerability for Japan in the research and development sectors, and thus the need for off shoring.

What other policies should governments pursue to secure access to crucial medical goods during shocks?

The occurrence of the covid-19 pandemic acts as a learning moment for many governments, and this is in terms of policy development regarding supply and availability of medical equipments.  Shocks, such as Covid 19 had a large-scale effect across the world, and many nations had not prepared to meet the demand for the PPEs. There are number of polices that government can pursue to mitigate such shocks in the future.  These include increasing supplies in the strategic national stockpiles (Cohen & Van der Muelen, 2020). Medical related shocks often bring about unforeseen market failures whose immediate effect the breakdown if the supply chain system for international trade. This implies that governments will not be able to get supplies, especially PPEs to help contain the spread of viruses or bacteria. Having enough stock in the national stockpile will ensure that the medical sector get enough short-term supplies to keep the health sector sufficiently supplied before getting additional supplies. Notably, this should be part of the preparedness strategy that the government needs to make it a policy. Projection could be used determine the amount of supply to be kept as stockpile, for example, is 30% of Americans become ill with influenza, there would be a need to about 3.5 billion N95 respirators. The PPEs in the national stockpile should be effectively maintained to reduce cases of expiry before use.

Notably, another major policy that government need to adopt providing incentives for the production of PPEs through the utilization of the existing technology, but encourage the development of better reusable ones. This can get attained through research, testing and design of better quality medical products to develop capacity for future production. In essence, this is a policy that empowers domestic production which ensures the increased demand is met even if the supply chain networks for international produce has been disrupted. Allowing local producers to use available technology to make the PPEs also ensures that the private investors can get enough cash flow during early stages of the manufacturing process that they can use to fund research and development. In the long run, the policy will reduce overreliance on external trade partners who cannot meet the PPEs demand due to supply chain disruptions.

References

Bown, C. P. (2022). How COVID‐19 medical supply shortages led to extraordinary trade and industrial policy. Asian Economic Policy Review, 17(1), 114-135.

Magableh, G. M. (2021). Supply chains and the COVID‐19 pandemic: A comprehensive framework. European Management Review, 18(3), 363-382.

Vaughn, A., & Weldzius, R. (2021). Reshoring Global Supply Chains.

de Ruyter, A. (2020). Reducing the fragility of our supply chains after Covid-19: time for a policy rethink.

Cohen, J., & van der Meulen Rodgers, Y. (2020). Contributing factors to personal protective equipment shortages during the COVID-19 pandemic. Preventive medicine, 141, 106263.