As Countries Bar Medical Exports, Some Suggest Bans May Backfire

Date: Monday, April 6, 2020
Source: The Wall Street Journal

Restricting key supplies may prolong the coronavirus’s hold

As the new coronavirus has swept across the world, governments have put the squeeze on trade in the vital medical supplies needed to fight it.

The U.S. this week invoked a Korean War-era law and ordered 3M Co. to halt exports of its protective masks to Canada and Latin America and prioritize sales to the federal government. Meanwhile, German officials said a shipment of face masks ordered from a U.S. manufacturer and destined for Germany was seized at Bangkok airport and diverted to the U.S.

These are the latest examples of a trend that is unraveling decades of deepening globalization—and some economists and executives say it risks undermining efforts to halt the virus’s spread.

Curbs on exports of drugs, chemicals, face masks, ventilators and other equipment vital to stopping the pathogen have proliferated since the beginning of the year as the number of cases world-wide has spiraled.

More than 1.08 million people in at least 181 countries have been infected and more than 58,000 deaths have been linked to the bug, according to data compiled by Johns Hopkins University.

For governments desperately trying to prevent the spread of the virus within their borders, blocking exports of domestically manufactured weapons against the pathogen means corralling more resources to keep their own citizens healthy. Some fear shortages and higher domestic prices if buyers overseas snap up what is available.

But some economists say such reasoning is shortsighted and may backfire. Curbs on exports risk deterring manufacturers from investing in new capacity to meet rising demand, exacerbating the very supply squeeze governments wish to avoid. Countries denied equipment may retaliate with damaging restrictions of their own. And withholding essential supplies from poor countries ill-equipped to fight the contagion not only risks lives but gives the virus a chance to survive long enough to return and wreak havoc all over again.

“What we’re talking about here is the human toll of bad trade policy,” said Simon Evenett, professor of international trade and economic development at the University of St. Gallen in Switzerland.

In March alone, governments around the world introduced 70 new export curbs and more are being imposed almost daily, according to Mr. Evenett, who leads Global Trade Alert, an academic project that since 2009 has tracked developments in trade policy.

More than 80 have been imposed since the virus first emerged in China late last year. Forty countries now have outright bans in place on the export of some drugs, pharmaceutical ingredients or medical equipment, including India, Turkey, Russia, the U.K. and Saudi Arabia.

Elsewhere, export controls have been tightened: The European Union, South Korea and Indonesia have stopped short of outright bans but have nevertheless tightened export controls, by setting limits on the volume of certain goods that can be exported or requiring exporters to seek new authorizations to sell their products abroad.

The European Commission, the 27-member EU’s executive in Brussels, last month said it agreed with member states that internal movement of such supplies within the bloc’s borders shouldn’t be restricted but that exports to countries outside it need special authorization from national capitals. The move came after Italian politicians criticized German and French restrictions they said were making it harder for Italy to get the equipment it needed.

China hasn’t officially banned exports but in January and February vacuumed up so many resources for its own response to the pandemic that deliveries overseas slumped. It has since expanded exports to Europe and other hard-hit regions.

Some manufacturers are supportive of government efforts to ensure healthy domestic supplies.

“I think it’s the right move,” Nik Kotecha, chief executive of Morningside Pharmaceuticals Ltd., a Loughborough, England-based drugmaker, said of a British government decision to restrict the export of 80 medicines. Announcing the move March 20, health minister James Bethell said the prohibition on shipping abroad medicines imported into the U.K. was essential to protect patients.

“If a product is needed in this market we should keep it in this market before looking at opportunities for export,” Mr. Kotecha said. The ban affects only a handful of products Morningside manufactures or ships in from abroad itself as a wholesaler, which will affect sales slightly, he said, but should alleviate patient and doctor concern about potential shortages.

Others, though, say export restrictions risk making it harder to produce the equipment governments say they need to battle coronavirus. Hamilton Medical AG, a Switzerland-based maker of ventilators, experienced a brief difficulty earlier this year sourcing components from Romania as a result of export curbs, Chief Executive Jens Hallek said, though he added the issue has since been resolved.

“If every country does this, then no one will get any ventilators. We and other ventilator producers rely on imports from other countries,” Mr. Hallek said in an email.

Economists say export bans pose other problems. Chad Bown, senior fellow specializing in trade policy at the Peterson Institute for International Economics, a think tank based in Washington, said such curbs risk causing particular problems for poor countries that don’t have the factories to make drugs and equipment and rely wholly on imports to battle coronavirus.

“It impedes poor countries from dealing with it when it shows up on their shores,” he said.

Evidence also suggests that export bans, by squeezing the global supply of medical supplies at a time of increasing demand, also risk driving up prices. A 2014 paper by researchers at the International Monetary Fund and World Bank found that protectionist trade policy between 2008 and 2011, when the global economy was reeling from the financial crisis, helped push food prices 80% above what they averaged over the previous 12 years.

A handful of countries including Canada, Australia, New Zealand and Singapore are pushing back against the trend of restricting exports, committing instead to keeping supply chains open and dropping any existing restrictions on trade in essential goods, including medical supplies.

In a statement last week, the Group of 20 major economies pledged to work together to facilitate international trade in medical supplies. But leaders stopped short of promising to end export bans, pledging instead that “emergency measures aimed at protecting health will be targeted, proportionate, transparent, and temporary.”

The stance has frustrated those trying to coordinate the global response to coronavirus. Tedros Adhanom Ghebreyesus, director-general of the World Health Organization, has called on governments to ease curbs on the export and distribution of medical supplies, not increase them.

“This is a question of solidarity,” he said, adding a global effort is needed to end the crisis.

 

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