The coronavirus free-trade crisis

Florian Horn, RLS Brussels

The coronavirus crisis is demonstrating the failure of existing trade policy. Goods that are in particular demand during the pandemic – such as protective masks, medicines and medical equipment – are being hijacked, immediately after coming off a plane, by cowboys on the wild-west global market or squirrelled away by rogue elements.

This wild-west mentality is particularly evident in the current crisis, but it also forms part of an international commercial framework geared towards free trade, where policy, dressed up in ideological terms, is tailored to the profit-based interests of the strong while neglecting weaker countries and members of society. Nowadays, free trade goes well beyond reducing tariffs. The removal of non-tariff trade barriers, like social or environmental regulations, is being used to create a harmonised global economic ‘level playing field’, consolidating existing structures and blocking bespoke national policies, thereby strengthening the arm of global corporations. This may even result in the delivery of a consignment of ventilators that had been planned for years suffering long delays because of a frenzied battle to take over global medical technology companies, making these devices unavailable at a time now when they are desperately needed.

The coronavirus crisis is revealing the fragility of global supply chains which came about as a result of efforts by the most powerful countries in the World Trade Organisation (WTO) and which have been cemented by ever more comprehensive trade and investment agreements. As a result, over the years, not only have once prosperous industrial regions been transformed into rusty ruins at an enormous cost to society, but capabilities that would have played a key role in getting a grip on the current supply crisis have been destroyed. As countries try to secure supplies for their population, the familiar cry of ‘America first’ is now being joined by similar noises from elsewhere – even from the EU. The crisis shows that the nation state and national interests are still the mainstay of ‘realpolitik’. As US President Donald Trump’s trade adviser Peter Navarro puts it, “no matter how many treaties you have, […] you run the risk as a nation of not having what you need”. In France, a debate has already started about relocating key lines of production – although whether this really signals the end of neoliberalism, as the Chief Economist at a French investment bank prematurely claimed, remains to be seen.

So there are indicators that point to change, but this is no reason to rejoice.

It may be that there will be very selective changes to the international commercial framework which will however be aimed at shoring up the existing system. Large companies are already beginning to worry about profitable globalised value chains being interrupted or, in the long run, even broken. Consequently, the WTO is calling for a return to business as usual as soon as possible, so a return to a trade system that resoundingly failed in the face of the crisis. Part of the reason for the system’s failure is that the pandemic is revealing how much more vulnerable its cornerstone, the globally unfettered competition of goods, capital, services and labour, is now than it was before the crisis. Even before the emergence of the coronavirus, these trade arrangements were exacerbating inequalities between countries and plunging them into trade wars and an environmental disaster, yet this has made no difference to attitudes. As a result, maintaining the trade status quo will continue to be a priority, but those in power know that if we want things to stay as they are, things will have to change. Of course, it is unclear exactly what will change in the international commercial framework given the unpredictability of the crisis’s impact, but some aspects are already becoming apparent, ranging from the relocalisation of key lines of production to an increasing role for digitalisation in production and an authoritarian consolidation of production processes. Restructuring already in progress, for example through job cuts, could even be accelerated. It is not the risk to humans that is considered crucial, but the human risk factor.

But how could the crisis be used as an opportunity to move away from the free trade system? Those controlling the existing commercial framework are feeling extremely unsettled, forcing them into crisis mode. For instance, ongoing rounds of negotiations on free trade agreements have been postponed for the time being because, for example, a chief negotiator had to temporarily self-isolate, and a new modus operandi for international negotiations may have to be found. The WTO Ministerial Conference due to be held in June has already been cancelled, but WTO negotiations on fisheries subsidies are continuing for now, while the Mercosur-EU trade agreement negotiations remain a top priority for Germany as the holder of the rotating presidency of the European Council. This has prompted opponents of free trade to demand, for a start, an unconditional halt to negotiations to be called during the crisis, but that is no substitute for a long-term strategy.

A move away from the free-trade doctrine will not be achieved now or in the future by a miraculous conversion of those who are currently benefiting from the existing arrangements, but only when there is irresistible pressure from broad swathes of society. As part of a re-regionalisation of the economy, involving among other things using tools of left-wing protectionism, consideration can go into what can be offered to all those who are currently concerned about their future, their health and their jobs. In this way, the indicative restructuring of international trade relations and production relationships will be shaped to fit workers’ needs and, to that end, air will be let out of the pressure valve of international competition. This may also bolster global solidarity (the United Nations Conference on Trade and Development (UNCTAD) points out that the COVID-19 shock will hit developing countries particularly hard), because decoupling creates room for sovereign economic, industrial and monetary policies that are necessary for sustainable development. Indeed, we already have blueprints for alternatives to the free trade system, and Cuba for example is demonstrating its ability to take effective action in the coronavirus crisis, while also showing the world what solidarity means.