Just as in 2008, U.S. and EU policymakers are staring into a black hole as global trade plunges and industry sputters.
But 12 years on, they are more divided about whether the answer is to oil the wheels of free trade, or whether the true lesson of the coronavirus crisis is that long supply chains (especially those tied to China) are a vulnerability and that big Western economies need to switch to producing more at home.
During the debt crisis a decade ago, the G20 group of leading economies spearheaded the response by calling out countries that resorted to protectionism and, learning the lessons of the Wall Street crash of 1929, preached the virtues of low tariffs and reduced customs barriers. There is no such consensus this time, as borders close and Washington and Brussels call for reshoring critical industries.
No one doubts the severity of the problem. China reported that its exports plummeted an eye-watering 17 percent in the first two months of this year and, in a dramatic sign of a contraction in industrial production and transport, world oil prices have sunk more than 60 percent since the beginning of the year. In the first two weeks of March, German and French shipments to the U.S. were down 10.6 percent and 12.5 percent in comparison with the same period last year, according to S&P Global Market Intelligence.
Faced with that scale of slump, German Economy Minister Peter Altmaier has insisted trade policy must play a major role in escaping from the crisis. “Thats why we should work together … and avoid tensions and obstacles to world trade,” he said.
German Economy Minister Peter Altmaier says trade policy must help the world to escape the crisis | Adam Berry/Getty Images
In the short term, the U.S. is also moving toward giving companies a 90-day relief on tariff payments, but Trade Representative Robert Lighthizer is giving a longer-term sense that globalization has gone too far. “We are learning in this crisis that over-dependence on other countries as a source of cheap medical products and supplies has created a strategic vulnerability to our economy. For the United States, we are encouraging diversification of supply chains and seeking to promote more manufacturing at home.”
While the administration of U.S. President Donald Trump has long been more clamorous than Europeans about reshoring, the topic has also leapt up the agenda in Europe amid the coronavirus crisis, with both Germanys Altmaier and his French counterpart Bruno Le Maire calling for more pharmaceutical production to come back to Europe.
Doing what they can
The worlds largest industry associations, including Germanys BDI, Frances MEDEF and South Koreas FKI reckon that the recipe for recovery is definitely more trade. They are urging policymakers to step back from export restrictions and to “minimize disruptions to global value chains and refrain from unnecessary new regulations and trade barriers.”
But most of the measures at policymakers finger tips are relatively modest and technical.
Italy was one of the first governments within Europe to step up. Its decree that tackles the economic impact of the coronavirus includes additional funding to support “internationalization” of businesses, financing for a communication campaign to bolster exports and other promotional initiatives.
For its part, the European Commission is trying to give EU exporters a boost by ramping up export credit insurance. Brussels changed existing rules to enable EU countries to provide insurance for short-term export-credit risk. Germanys chambers of commerce had issued an urgent call for governments to cover insurance for foreign trade, warning that private credit insurers were withdrawing from what is normally a formality.
France on Tuesday announced it would insure foreign trade across the world, rather than only for 17 countries.
But here again, policymakers are being tugged in two directions. Countries may praise open trade but also have deep strategic concerns about the export of medical equipment. A report last week from the Swiss-based Global Trade Alert found that 54 countries have imposed export restrictions on medical goods since the start of the year.
G20 trade ministers on Monday vowed to keep that market open, but stopped short of promising not to impose export restrictions. EU trade chief Phil Hogan called on leaders to keep trade flowing and to “avoid the downward spiral of restrictive measures or stockpiling” but at the same time defended the EUs controls on shipments of personal protective equipment.
Crippling global trade
Within Europe, the crisis has piled stress onto intra-European supply chains with new border checks causing traffic jams for truckers. The European Commission had to call on EU countries to implement so-called green lanes to permit the transportation of goods and is seeking to minimize checks and paperwork for transport workers.
Even if the EU resolves those troubles within its common trade area — the single market — the coronavirus poses a more global challenge.
“Well have a rude awakening once the numbers on German-Chinese trade come in in the coming weeks,” said Volker Treier, head of foreign trade at the German Chambers of Industry and Commerce (DIHK).
Italy will see its exports drop by 5.1 percent in 2020, according to figures from Italys industry lobby Confindustria. The countrys exporters are faced with enormous challenges as the entire country has been in lockdown since March 10, said Marco Bonometti, president of Confindustria Lombardy, the worst-hit region in Italy.
“The total lockdown message perceived abroad is leading to an isolation of Italy by important industrial and commercial partners and to the concrete possibility of losing positions compared to our international competitors,” Bonometti said. “[The shutdown of factories] risks paving the way for unpredictable scenarios with damages difficult to quantify, first of all for the many businesses making their living on export.”
Head above water
For now, the politicians are simply trying to gauge how bad the trade slowdown will be.
Signals from global air cargo are dire. All EU countries apart from Ireland have a ban on travel from third countries. Airport lobby ACI-Europe said that even if the industry gets up and running again by the end of April, the world will see 700 million fewer passengers pass through Europes airports this year — a drop of 28 percent.
Crucially, airliners carrying passengers are also loaded with cargo. As fewer passenger planes are flying, cargo doesnt move as cheaply or as fast. “Roughly half of global air trade travels in the so-called belly of aRead More – Source