This note summarises an online trade seminar which was ran by Rebuilding Macroeconomics and two webinars run by the Royal Economic Society. The focus is on the impact of COVID-19 on international trade, economies, institutions, and societies. The `speakers are:

Rebuilding Macroeconomics

Recording of event: https://youtu.be/kTyB3jw7rDU

Isabella Weber – Assistant Professor of Economics at UMass Amherst

Meredith Crowley – University of Cambridge, Cambridge INET

Chad Brown – Peterson institute of international economics, creator of trade talks podcast

Kevin O’Rourke – Professor of Economics, New York University

The Royal Economic Society

Recording of event: https://www.res.org.uk/resource-library-page/covid-19.html

Daren Acemoglu – Professor of Economics, MIT School of Economics

Jean Tirole – Professor of Economics, Toulouse School of Economics

Isabella Weber: Global division of labour between two eras of globalisation – a long term view on the COVID-19 crisis.

Isabella’s research focuses on a comparison between the first wave of globalisation which occurred between 1896 and 1906 and the second wave of globalisation which is argued to have begun after the second world war and possibly reached a peak in 2008.
They have done this by creating a novel dataset which looks at a snapshot of trade between 1896-1906 and re-coded it so it matches the latest UN Comtrade trading classification system. This allows direct comparison between modern trading patterns and the trading patterns in 1896-1906.
The database covers 90% of world trade so is an accurate measure of the trade patterns in that era.
She took a measure of export diversification which captures how many different types of goods a country exports. She ranked countries by their level of export diversification and found that almost all of the countries which had the highest export diversification in 1902-1905 also had the highest export diversification between 1998 and 2007.
The main finding is that there has been a relatively stable pattern of polarisation between the diversified global north and the specialised (in raw materials) global south.
She also finds that countries have become far more diversified over time, but the most diversified countries are all in the global north.
In the post COVID-19 world she lays out two scenarios: de-globalisation and cooperation. In the former scenario the diversified global north brings “production home” but this will be extremely costly and could cause significant harm and efficiency losses.
She argues that bringing home production would also increase localised risk.
For the middle-income semi-diversified countries, it would be costly to reverse export orientated development strategies. For the specialised countries in the global south de-globalisation would be very costly because they cannot produce a lot of goods that they need.
In the cooperation scenario the world could take action to reduce the just in time supply chain model and implement a buffer stock system. Increased global cooperation on health and environmental standards.

Meredith Crowley: the COVID trade collapse – lessons from 2008/09 & insights from micro data

The Great Trade Collapse occurred after the 2008/2009 crisis. International trade flows fell by 10-12%. This crisis is likely to be worse.
One of the good stories from the GTC is that countries did not increase trade restrictions after the collapse which was surprising but acted to weaken the crash.
The GTC was very significant and greater than previous trade collapses in 1975, 1980, and 1982. The recovery was faster than some other previous collapse but after one-year trade levels still had not reached the pre-crisis level.
Some countries were harmed more during the GTC. Mexico suffered a reduction in trade volume of over 25%. The UK was similar to the US and Germany and suffered a collapse in trade volume of close to 15%.
The UK bounce-back in trade and GDP was muted after the crisis. The UK did not grow between 2009-Q2 and 2010-Q1 which is in contrast to other advanced nations.
The key factor behind the GTC was the decline in the demand for durable goods. This fed though global supply chains which pre-dominantly service durable goods manufacturing.
The policy response was not a factor in the size of the GTC.
In a previous paper Bown and Cowley (2016) find that in advanced countries between 1988-2008 a one standard deviation increase in the domestic unemployment rate increases the number of goods subject to new import restrictions by 50%.
Using the same model for 1988-2008 they estimated that trade restrictions would increase for 15% of US non-oil imports. In practise, after 2008, only 1% of non-oil US imports were subject to new import restrictions. In the EU, the story was the same.
These findings show that countries worked very well together after the GTC to limit protectionism.
The COVID-19 shock is very different to other shocks because it is a demand shock and supply shock. As countries come out of lockdown the restrictions will be relaxed in stages and may not occur in sync with other countries.
Some firms will be better placed to adapt to these changes than others.

Chad Bown: how COVID-19 could bring down the global trading system

This is going to be a very pessimistic presentation. People in the policy world are concentrated on the health aspect of this crisis and trade comes into the conversation often in terms of trade restrictions on medical goods. Chad argues it could become much worse.
Massive protectionism did not come out of the crisis in 2008/9. General tariffs like MFN tariffs did not move at all. Trade remedies, countervailing duties etc. saw a tiny bit of an increase after 2008/9.
In 2013 the share of US imports subject to import restrictions reached a low of 1.3% it has been rising steadily since then to just over 4% in 2019. Across the years 2009-2010 there was not an increase which was surprising to trade analysts.
The flexibility of exchange rates was a factor for this. Cooperation was also key. The G20 was pivotal in shaping the post crisis response to resist protectionism. There is also an argument that global supply chains limit the demand for protection because it inevitably harms global firms which are both importers and exporters.
Why is COVID-19 different? The economic shock will be larger, the domestic policy response is very hard to get right, the opening of different countries at different times will be a factor.
The political will for protectionism is stronger than it was in 2008/2009. Examples: the US rules of origin negotiations for the automobiles section of the NAFTA was contrary to what US automobile manufactures want, the Brexit negotiations, the China trade war. Over 80% of US intermediate imports from China are under tariffs of which many are close to 25%.
The comparison between 2008/09 and now is staggering. The tail end of the Bush administration did not need to get the G20 together at the leader level to promote trade. Domestically it was not that popular BUT it was very important for promoting anti-protectionism. In comparison there was a trade minister meeting on March 30^th, 2020 and during that the US commissioner for trade blamed trade for the crisis.
Countries have imposed export bans on medical goods which initially started with EU countries banning trade within the EU. This was later relaxed to bans on countries outside the EU. But still shows how multilateralism has failed.
The US is in election season. Trump will try and blame anyone about the current economic situation. He will eventually blame trade.
There will be trade deflection to countries which open up sooner and are more open.
The trading system is very vulnerable to automatic protectionism through anti-subsidy and anti-dumping duties. This could act like a domino effect on the world trading system because firms only need to prove that they have been harmed and a subsidy has occurred.

Kevin O’Rourke: thoughts and ideas

A major caveat is that we are not out of this crisis. It has only just begun so hypothesising about how the future is going to be is hard in the middle of a crisis.
Another caveat is about the use of the world globalisation. It is a crude measure which can mean commodity trade, capital flows, migration, disease spread, multilateralism. It is a multi-dimensional process with each dimension having different effects. You cannot be globalist or anti-globalist because it is too crude.
De-globalisation is the increase in cost of doing business across borders. The implication of this definition is that if a business decides it want to on-sure production this would not mean de-globalisation because the cost of business has not gone up.
Historical analogies. Late 19^th century, there was a big decline in trade costs and a rapid increase in trade. This created winners and losers which eventually resulted in increased tariffs. I think this has been happening and can be seen in the Brexit story and US trade war. This is not COVID-19 related but COVID has been super-imposed on this.
1930s is another possible analogy that doesn’t work. There was a huge increase in tariffs which was mainly driven by a desire to increase domestic demand by reducing imports. There is some evidence that this was individually rational for countries to do and there is evidence that positive tariffs rates and GDP growth were correlated.
Germany and Japan rise in geo-political prominence in the early 20^th This was partly driven by a fear of being dependent of strategic resources. Both Germany and Japan wanted oil and rubber. Comparison with needing medical supplies. Luckily, you can produce medical suppliers anywhere and don’t need to go to war to get them.
The most obvious analogy is post WW2. The world was traumatised. Nation states had failed to provide security to their citizens which is their most basic function. Institutions were set up to provide security. There was balance between trade liberalisation and protectionist states.
In the 1950s and 1960s in the developed world people needed food security. Nation states introduced national agricultural policies. This was replaced by the common agricultural policy along with other minimum levels of regulation in the Treaty of Rome.
The system has failed us today. In the next 20-30 years as long as memory exists of COVID-19 citizens will demand security from virus. That involves a balance between national protection and multilateralism which will be very technical.
The European Commission will try and replace domestic borders with common external borders. This requires common policies. For instance, this time we could see a common health policy in the EU. Food security will be critical.
Governments will not put themselves in a position where they are scrambling for PPE, but this needs to be balanced with multilateralism.
The market will not provide us with excess capacity because it is inefficient so there is room for state involvement.
One of the most striking revelations of the crisis of how it has revealed preferences. The restrictions are popular globally. The crisis is telling us people are very risk averse, they care about people other than themselves.
COVID is not climate but COVID has pushed climate even further up the agenda. People care about others more than GDP – this is one of the key trade offs with climate action.

Daren Acemoglu: unknowns, challenges, and opportunities in the time of COVID-19

Major public health implications, major economic implications, major political changes (to follow).
Four key unknowns:

Dynamics of infections when epidemics interact with economic and social behaviour
Economic interventions when supply chains may collapse
What kinds of institutions and states-society relations led to the failures and delays in government responses?
What the pandemic will imply for the future of economic and political institutions

“SIR” model used by epidemiology
R is the rate of infection. Lockdown lowers the R level.
Beta depends on economic and social behaviour affect “matching”
In practise, different subpopulations have different infection, hospitalization, and fatality rates.
Supply chains have largely been ignored by policy. Policy has focused on transfers to workers, liquidity for businesses, and limiting the collapse of aggregate demand.
Disruption to supply chains can have large multiplier effects. Some critical parts of the supply chain may need support more than others which can re-energise the whole supply chains.
Institutional failures – huge variation in response to the pandemic across countries.
One reason – atrophying in the capacity of state institutions.
Trust in state institutions is low apart from China, Singapore, Denmark. Preference falsification may be why authoritarian governments experience higher trust from their citizens. But this “fake” trust may still be valuable in crisis.
Critical juncture for our institutions: anti-globalisation vs multilateralism, privacy vs security, authoritarian leader’s vs liberal leaders, democracy vs autocracy.
A new totalitarianism? Beveridge report in 1942 and the rise of the social state. Hayek worried that the state would dominate society as a result.
There is a balance between the state and society. As the state shoulders more responsibility it requires an active society to balance the power to prevent a leviathan state from emerging.

Jean Tirole: the short, medium, and long-term impact of COVID-19

Lockdown costs and double hit on developing countries who depend on tourism and more exposed to commodity prices.
Moral hazard is low – you need to protect fragile players like the self-employed, unemployed.
Protective structures like job retention schemes, protect SME’s, and most affected sectors.
Limiting economic damage through support not stimulation. There shouldn’t be an open bar e.g. no helicopter money.
High increase in public debt which is unavoidable. G is likely to be low, but r will be high despite high public debt. You need trust in the public death.
5 ways to pay for the debt from the crisis.

Debt slowly repaid from primary surpluses – reduce consumption
Debt repudiation – the state required to balance its budget by not borrowing
Exceptional wealth and income taxes
Debt monetisation – the central bank could buy the debt back…but this could cause inflation.
Coronabonds – making the countries in the EU jointly liable for the debt of each other

Re-thinking values and organisation of society? Business as usual or wakeup call?
Citizens – join social groups, more empathy, common external enemy
Policy makers – will they take a longer-term perspective?
Widespread policy myopia (aggravated by populism)
Pandemics are no longer a rare event.
Evolution toward less consumption and more investment.
Globalisation – criticism of globalisation during this crisis,
The question is combating the perverse effects of globalisation.
Recommendations:

Make a distinction between:

Supplies that are essential in crisis times: markets don’t work for these goods.
Ordinary consumption goods: supply-chain diversification = prerogative of firms

Resist lobbies which will ask for protection or “essential” status.

Be flexible and clever

Reshoring does not mean resilience
Technological evolution: 3D printing of ventilators?

A collection of notes