International Trade of Essential Goods during COVID-19

Most of the research on the economic effects of COVID-19 has focused on financial and labor markets, and fiscal and monetary policy. Fernando Leibovici and Ana Maria Santacreu tackle the less-studied issue of international trade. They show that U.S. imports of medical equipment rose sharply, expanding the U.S. trade deficit and providing a new angle on the old issue of the resilience of self-reliance versus the efficiency of free trade.

By Fernando Leibovici and Ana Maria Santacreu

Countries open to international trade, with production patterns determined by comparative advantage, have gained vast benefits from access to world markets. But the COVID-19 pandemic in early 2020 revealed tensions and some limitations inherent in the design of international trade policy: Countries that relied heavily on imports of critical medical goods—such as personal protective equipment—found themselves at a distinct disadvantage when the pandemic created a sharp worldwide increase in the demand for these goods.

International trade plays a key role in allowing countries to access essential medical products. Their production is heavily concentrated in a few countries, and most countries import them. The increase in the demand for these products along with the slow increase in the supply led to worldwide shortages.

The figure below shows that several countries resorted to trade policy to mitigate these shortages. By March 2020, 58 countries had implemented export curbs and 50 countries had liberalized their imports of these goods. While these policies were largely temporary, several countries still had them in place at the end of 2020, nine months into the pandemic.Data are from Global Trade Alert and include trade policies related to import liberalizations and export restrictions for COVID-19 products, according to World Trade Organization information on COVID-19 and world trade.

So, during a pandemic, should countries respond by introducing export curbs and liberalizing their imports? Are there other policies that might be better suited to improve an economy’s welfare once a pandemic has begun?

Our 2020 working paper, “International Trade of Essential Goods During a Pandemic,” investigates the optimal trade policy response during a pandemic, in the context of a dynamic model of international trade with essential and nonessential sectors. We found that, just as observed during COVID-19, the optimal unilateral trade policy is to simultaneously and temporarily raise export barriers while reducing import barriers.

But the pandemic also raised several questions regarding the design of trade policy during normal times, prior to a pandemic taking place:

• To what extent should countries implement trade policy differently for goods that might prove essential during a pandemic?
• Should countries introduce import barriers or domestic subsidies to encourage domestic production?
• Should countries stockpile these goods to accumulate a sufficient supply to ensure adequate access during a pandemic?

These considerations extend further than the ongoing pandemic, from access to food to the production of raw material and intermediate inputs that might be critical for important industries. We expect that future discussions on the desirability of openness to international trade will revolve around many of these issues.

Notes and References

1. Data are from Global Trade Alert and include trade policies related to import liberalizations and export restrictions for COVID-19 products, according to World Trade Organization information on COVID-19 and world trade.

Related Resources

• On the Economy: How Much Does the U.S. Rely on Other Countries for Essential Medical Equipment?
• On the Economy: Protectionism and Dependence on Imports of Essential Medical Equipment
• Economic Synopses: International Trade Policy during COVID-19
• Economic Synopses: The Dynamics of the U.S. Trade Deficit during COVID-19: The Role of Essential Medical Goods