April 23, 2020

Coronavirus Trade Restrictions


KEY TAKEAWAYS

  • Countries around the world, including the United States, have blocked various imports and exports in response to the coronavirus pandemic.
  • In addition to medical supplies, some countries have restricted trade of key agricultural goods.
  • Preexisting trade disputes with the European Union, China, and others have continued during the pandemic. 

While economies across the globe struggle against the coronavirus pandemic, restrictions and other constraints on international trade are creating further complications, both in fighting COVID-19 and for general economic health. Some of the interventions are intended to maintain short-term domestic supply of necessary medicine or medical equipment, although it is far from clear they will achieve their intended purpose. Many countries have gone further by curtailing exports of agricultural goods to temporarily reduce domestic prices. The interdependence of the global economy means these restrictions will raise international food prices and potentially deprive impoverished countries of staples.

Export Bans by Top Exporters of Agricultural Products

COVID-19 Trade Impact

Trade Restrictions on Medical Supplies

As of March 21, there were 54 countries that had introduced restrictions on the trade of certain medical supplies to temporarily increase local supplies. Limiting sales overseas may temporarily increase supply of domestically produced products, but it may also undermine aggregate supply, particularly if other countries reciprocate with restrictions. Restrictions undermine the long-term certainty that firms say they need to expand production fully.

Shutting down international trades in medical supplies can also harm strategic alliances. The government of Serbia, for example, received assistance from China and Russia when the European Union publicly weighed restricting supplies. Tariffs originally initiated against Chinese medical supply exports to the United States in 2018 led Chinese suppliers to establish relationships with new customers, leading to their current prioritization over U.S. customers. 

Finally, restrictions in one kind of medical supply can lead to retaliation that hurts another area of the supply chain. The United States has restricted exports of respirators, surgical masks, and other personal protective equipment, but the country is vulnerable to retaliation in several other areas. The EU serves as the primary foreign supplier of America’s hand sanitizer, x-ray machines, breathing masks, and CT systems. Key parts of U.S.-produced ventilators, including those to be manufactured by General Motors, come from China. Relocating production and supply chains for medical goods, while an important long-term goal, is particularly challenging because manufacturing facilities often need to undergo lengthy inspection and approval processes before any goods they produce can be placed on the market.  

Agricultural Trade Restrictions

The transformation of lifestyles in response to coronavirus across the globe has led to changes in food production and consumption. With the supply of labor interrupted, some farms are experiencing a dramatic drop in production. Many countries have restricted exports of certain crops they deem essential to their people. As with medical supplies, the rationale for the restrictions is to temporarily increase local supply, but domestic political considerations have also played a role. Left unchecked, the restrictions could increase worldwide food prices and, consequently, deaths from famine in some parts of the world.

While the United States and its allies have largely refrained from imposing export restrictions on agriculture, countries across eastern Europe and Asia have adopted severe limits. Russia, the world’s number one producer of wheat, has proposed a quota on grain exports. Russia and Kazakhstan have restricted exports of sunseeds, buckwheat, rice, and rye until June 30. Ukraine has banned exports of buckwheat and restricted export of flour, grains, and related products to maintain bread prices. Vietnam, the world’s third-largest producer of rice, has suspended rice export contracts. Cambodia and India have similarly restricted rice exports. Egypt has suspended exports of legumes. Turkey is regulating lemon exports, as lemon juice is a key ingredient for the traditional hand disinfectant used in the country.

While wealthier countries can tolerate higher food prices, some poorer nations will face particular difficulties from these restrictions. For example, Bangladesh, Turkey, and Egypt each import more than half of their wheat from either Russia or Ukraine. The need to find new imports will tend to drive up food prices. Severe increases in food prices in these countries could cause political instability. In impoverished nations like Somalia, even moderate food price increases can cause thousands of deaths.

Sources of Wheat Imports for Selected Countries

COVID-19 Trade Impact

Ongoing Disputes

Preexisting trade disputes the U.S. has with China and the EU have continued throughout the coronavirus crisis. Some punitive trade measures are reportedly affecting medical supply issues. U.S. medical supply companies have asked the government to waive tariffs on various goods, claiming that the tariffs are contributing to shortages. Although the U.S. trade representative has lifted the tariffs imposed on certain Chinese products, industry groups have suggested that the number of relevant products is much greater. In response to these criticisms, USTR has sought public comment on a possible modification of section 301 tariffs against imports of Chinese medical care products. 

Meanwhile, trade disputes relating to steel and aluminum have not abated. In January, President Trump signed a proclamation extending tariffs on these goods to derivative products like steel nails and aluminum cables. The order exempted several countries, but notably not the EU. Those tariffs went into effect on February 8. In response, the EU is planning retaliatory tariffs against lighters, plastic fittings for furniture, playing cards, and other goods.

Issue Tags: COVID-19, Environment