Coronavirus and World Trade
| 1. Coronavirus and World Trade | |
| Gains from Trade | In the Ricardian world, countries have different technologies. Each country exports the good in which they have comparative advantage, and both countries will benefit from trade.
In the Heckscher-Ohlin world, countries have the same production technologies. Each country produces both goods but exports the good which intensively uses its abundant factor. Both countries benefit from the Heckscher-Ohlin type trade. |
| Coronavirus effect | America’s health security
(i) International trade poses a significant risk to the importing countries. Coronavirus originating in China necessarily is spread to any country importing Chinese products. Any gains from trade must be weighed against the trading risks or damages resulting from the Coronavirus. The death toll of thousands of lives and economic costs of shutdown far outweighs the gains from trade. |
| China’s threat | (ii) China has threatened to wreak havoc on America’s drug supply. It can stop shipments of pharmaceutical ingredients, which are components of antibiotics and other prescription drugs.
Peter Navarro: We need to reduce America’s dependency on foreign medical and pharmaceutical suppliers. |
| These may signal a US retrenchment from the rule-based international trading system. | |
| WTO is broken | (i) Developing country status: A country only needs to declare that it is a developing country, regardless of GDP.
(ii) WTO does not regulate biological weapons. Scientists claim that SARS and Coronavirus are both man-made viruses created in a lab. (iii) There is no rule to oust a rogue member from the WTO. (iv) India has asked for compensation from China, $2 trillion. Other countries are likely to join, once they recover from the ravages of the virus. |