Rethinking Trade - Season 1 Episode 3: Governments, Not Corporations, Should Regulate Trade in COVID-Crisis Goods

Today, instead of corporations unilaterally deciding where and when to sell every product, governments worldwide are doing what many expected of them all along - prioritizing residents’ needs and securing medical goods. In this episode, Lori explains why such reasonable conduct is actually forbidden by trade agreements and what changes are needed to create a more resilient, equitable global economy.

Transcribed by Lauren Martin

RYAN HARVEY: Hey everyone, and welcome back to Rethinking Trade. I’m Ryan and I’m joined once again by our in-house trade expert Lori Wallach. Lori is a long-time fighter for economic justice, she’s among the leading experts on international trade policy in the United States, and she’s also the director of Public Citizen’s Global Trade Watch. 

So Lori, we’ve been hearing a lot in the last few weeks in the mainstream media about export restrictions on medical goods. I was wondering if you could maybe break some of that stuff down for us and explain how these export restrictions impact folks like us.

LORI WALLACH: So, you’re going to hear a lot about export restrictions from people who want to try and defend the failed status quo trade system that has lead to this hyper-globalization that is resulting in us being unable to get or make the essential medical supplies we need to combat the crisis. What they’re focusing on is what they think is ideologically a heresy, that countries should consider the needs of their own residents before having goods made in a country sent someplace else. And, the US is one of the last countries to look at this, in fact most countries were doing needs testing- “hm, do we need this to deal with the COVID crisis here before they were exporting things,” – only a few countries, China and India, actually banned exports of masks or medicines. Most countries are doing needs tests, let’s review before we have it exported. The US just started doing needs tests and in fact, the Commerce Department was promoting exports, getting US companies that made ventilators and the few that make masks, to send that stuff to China and helping set up that actual transactions right through February into March.

HARVEY: And, are these export restrictions the reason we’re not able to get masks and respirators right now?

WALLACH: No. So, the reason we can’t get the things we need is that the corporate rigged trade agreements and our hyper-globalized supply chains have led to a production system where the majority of many critical products are only made in one or two countries. And so, even if the whole good isn’t made in or two countries the key part is. So that if one link in that chain- and a lot of the links are in China- breaks, then worldwide shortages very quickly develop. And we know from the US Department of Health and Human Services that 95% of the masks supply, the surgical mask supply, is imported. And 70% of the respirators like the N95 masks that are used in hospitals.

 So, we’re super reliant on imports, for sure, but the countries who are having a crisis at the same time we are deciding to first supply their own residents with things they make isn’t the cause of our crisis. Because the problem is there just aren’t enough to go around. So, it’s some kind of accountability for the people who are being governed to expect their government to try and look out for them- that’s the role of governments. Our problem is that we don’t make enough stuff here anymore. 

We have policies that promoted outsourcing to an extent that we are simply not resilient in the face of this crisis despite being the world’s largest economy. And, our government has in no way managed or prepared for a crisis like this. We have no stockpiles once the crisis was foreseeable, they didn’t make sure we had the goods we needed. They didn’t start limiting our exports. 

So, the biggest issue is, we need to bring supply chains for critical goods closer to home. And we need redundancy so that we never have a situation again where a huge percent – right now 90, nine oh percent- of active pharmaceutical ingredients, the stuff that goes into every pill that is made. All the medication regardless of where it’s actually formed into a pill, the active pharmaceutical ingredients, 90% are made in China and India. So India stopped exporting those goods, they needed them domestically. China limited exports. There’s no redundancy, there aren’t other sources. So in addition, obviously production was limited, because the economy started to slow down first in China, so it would’ve been impacted even if exports weren’t limited. We need redundancy and we need more domestic production capacity, particularly in big countries, so that we’re not so reliant on distant, foreign supply chains.

HARVEY: So, one of the realities of the globalized economy today is that cutting off exports in a time of a crisis would also cut off non-producing countries, often poorer countries, countries in the Global South, from accessing those same supplies when they need them most in times of crisis. So maybe you could explain what alternative trade models could look like, what a different system could look like, that doesn’t have such an impact but still allows countries to protect themselves in moments like the one we’re in right now.

WALLACH: So, a lot of what you hear about export restrictions in the news is coming from cheerleaders of trade status quo. So for instance there’s a study that got a lot of mainstream media coverage from a guy named Chad Bown from the Institute of International Economics. And his argument was “we shouldn’t do export restrictions because if we do that other countries will retaliate, and export restrictions will be imposed that cut off our supply.” And it was just ridiculous because the US was two months after every other country started looking at “hm, what do our residents need, should we be selling this stuff someplace else?” Every other country was starting to need tests and limit exports and somehow the US catching up to that would make other countries retaliate? But actually they’ve been doing the reviews on exports for two months. That’s a silly reason to be concerned about export limits. 

The thing that’s legit is what happens to countries that don’t have the capacity. So, when we think about this as a practical matter, we shouldn’t be thinking about how do we defend the status quo model, heaven forbid governments decide whether or not it’s a good idea something should be traded. Rather, we should be thinking about yeah, governments should have a role and the role is to make sure that people have the essential supplies they need. And when it comes to, for instance, let’s just say, our neck of the woods the Caribbean islands, some of the poorest Central American countries. 

When we’re thinking about limits on exports, then one of the first things we should think of, okay, China doesn’t need our stuff. They’re making their own. Or, India doesn’t need medicine from us, they make a large share of the world’s supply. Germany and the Europeans don’t need ventilators, that’s one of the main places they’re produced. But let’s look at the Caribbean Islands. Boy, they actually do need our stuff, so as we’re thinking about what we need for US residents, our exception to not exporting, we should think about some of the very small or poor countries near us who become very reliant on us. And so, you know in the case of medical supplies, Mexico and the US are huge suppliers to the Caribbean and Central America. So then the US and Mexico coordinating to say “alright we’re each going to have these reviews on our exports,”- legit, we have to look after our people- “but together let’s also figure out how our neighbors, who have become totally reliant on us, are also going to make sure that they get stuff.” And yeah, we’re going to totally say no exports to name the places that don’t need our stuff, for sure. Are we going to make sure neighbors who are really reliant or are small countries, even if they’re not neighbors, might be in a crisis, we want to help them out if their neighbors aren’t helping them? Yeah, that would be the exception. 

By having a total free for all of laissez-faire, the market demands, let’s all get into a huge fight, who’s going to pay the most, the Chinese government’s going to pay the most them all mask production outside of China where most mass production is should be bought up by China for basically a profiteering scheme of who can pay the most. Which typically is not going to be a smaller developing country. That’s totally the wrong way to go.

HARVEY: And this type of export restriction you’re describing, you know, deciding which goods are needed during a crisis, restricting exports of those goods to certain countries but also assessing that there might be countries that actually still need those export and deciding that that’s okay. Would that violate any of the trade agreements that we’re in right now? Are there penalties for making those decisions?

WALLACH: Yeah, for sure. I mean any country that’s doing export limits, that’s doing needs reviews, is technically violating the WTO’s rules against export limits or controls. The corporations will decide what will be shipped where, when, and even if it’s made in particular country that company decides whether that thing in the country is sold in the country during a crisis or not. That is what the trade rules require, 100% corporate managed trade. So, it’s heresy to have governments say “uhhh, hold on one second there company, we need to look at something beyond your profit margins, we need to look at resilience in a health emergency, basic humanitarian supplies for our country or our neighbors.” 

So that’s why you’re seeing all this shouting in the mainstream press as if this is some outrageous behavior to actually do a needs test about whether something should be exported and if it is, to where. In fact, the kind of trade rules we should have should take into consideration not just corporate profits or some mathematical notion of efficiency, but actually resilience of supply chains. Are there ways we’re going to make sure we have access to essential things we need. 

And, frankly at this moment the whole world is saying “we don’t give a rat’s ass what the WTO rules are, we want to save people’s lives. As governments we’re accountable to the people who are residents of our countries. Like no one in Geneva at the WTO Secretariat elected me, I’m going to have people furious with me if I don’t take care of the people in my country.” And that’s a real learning moment because when push comes to shove, there is a strong desire to make sure countries have keep supplies and there is resilience. And there is an opening to push for change. Those rules in the WTO and in various free trade agreements will have to be changed. And there are mechanisms that we’ve had in the past to do it. 

Just for instance, before the WTO, for decades of the General Agreement on Tariffs and Trade, there was a particular agreement called the multifiber arrangement. It was an agreement that basically dolled out market share in textiles and apparel. Different countries got different quotas on what would be their guaranteed piece of that production. And the idea was, textiles and apparel are an easy entry infant industry for developing countries, so if just the big guys, so if Europe, the US, Japan, took all the textiles and apparel production, the smaller countries, the developing countries, would never get a start. And so that was a managed trade system. It was managed for a goal: development. And it was kind of a Cold War tool to show countries “hey, come join the market economy.” But it had goals, and it managed trade towards a goal. You can have a very similar system with respect to essential health products where basically a certain part was traded and guaranteed, and outside that guaranteed quota countries could have trade restrictions. 

So that they could be basically producing domestically and protecting that ability to produce even if in the globalized market of race to the bottom wages they wouldn’t be the most efficient producer. So we’ve seen it done, it can be done again.

HARVEY: I think you said it best earlier, that this has been a learning moment for sure. This is the global system that this trade ideology created and that its defenders are still defending today. But interesting that some of the wealthier countries when push comes to shove will violate their own trade rules to protect themselves. It’s almost like there could be trade rules that could allow governments to take care of people even at the expense of corporate profits without bringing about some kind of retaliatory penalty, or you know jeopardizing the flow of goods.

WALLACH: It is a shocking way to realize what a fragile state our current trade and globalization regime has left millions of people around the world. But the good news is there are alternatives. Unlike say, the virus, this is not something that is a mutation of nature. We made this mess and we can undo this mess. And that is why we need to rethink trade. This is an ongoing discussion, more to come soon.

HARVEY: Rethinking trade is produced by Public Citizen’s Global Trade Watch, where we don’t just talk about trade policy, we fight to change it. Visit rethinktrade.org today to get involved in our campaigns and help us fight for global economic justice. Thanks for listening.