Add the COVID-19 pandemic to already low economic growth, stalled investment, inertia across the multilateral trading system, and geopolitical tensions and the economic result is where we are today.
How should policy makers respond? The perspectives offered by the IMF, WBG, and OECD are clear, actionable, and consistent. All recognize that the global recovery will be slow, uneven, highly uncertain and dependant on further government action. All urge goverments to provide much more support for the most vulnerable populations: for families without adequate social safety nets, for children deprived of education (and school nutrition programmes), for struggling businesses that can be viable under normal market conditions, for over-burdened public health systems (including for rapid vaccination programmes). And all agree that more international cooperation is prerequisite to better outcomes, nationally and globally.
How should trade policy makers respond? Begin by doing no harm and move quickly to doing more good.
Governments should resist the temptation to restrict exports of essential goods, i.e. to avoid harming others in an attempt to protect ourselves. In our interconnected economies, ‘what goes around comes around’ rather quickly, and destroying confidence in the reliability of the trading system harms everyone.
Governments should avoid acting on the false assumption that local production is always more stable and reliable. Policies that aim to force re-shoring (such as domestic subsidies, border protection, and local content requirements) imply higher costs, higher prices, lower output, and less – not more – stability of supply. As former colleague Julia Nielson highlights in a forthcoming OECD publication, subsidies for local production mean less funding is available for other priorities, from health and education to physical and digital infrastructure. And the burden of higher prices, increased instability, and foregone public services falls most heavily on vulnerable groups least able to bear the burden.
Instead, governments should do more to reduce the uncertainty that overshadows global economic prospects, including by enabling fairer trade and more resilient supply chains: removing tariffs, inefficient border procedures, undue restrictions on cross-border data flows, and poorly designed regulations would reduce unnecessary trade costs and enhance the ability of firms to adapt to evolving market demands and to unexpected shocks. More sources of competitive supply mean more opportunities to diversify risks and to increase productivity, output, and jobs.
Governments can act alone, but much more can be achieved by working together. Updating the WTO rule-book has been an elusive undertaking, but the benefits are so large and widespread that efforts should be re-doubled. Simultaneously, like-minded countries should pursue comprehensive plurilateral arrangements, including binding commitments and best endeavour measures, with ambition and urgency. Greater use should also be made of various forms of ‘soft law’, from responsible business conduct to export credit arrangements, to ensure a level playing field internationally.
In some areas governments can be most effective by working more closely with the private sector. Building global, regional and national information systems that anticipate supply, demand and potential shocks for selected goods and services should be pursued on a public-private basis. Governments should also cooperate to put in place action plans and public funding to support strategic stocks of essential goods and to maintain redundant capacity to provide goods and services beyond normal levels of demand. It is simply not feasible for individual firms or even for all countries to pursue such initiatives on their own.
Government action along these lines implies a renewal of mutually beneficial international economic cooperation. Working better together is the surest path to rebuilding the confidence of businesses, investors and traders – and in turn to re-igniting our economies.