The worsening Covid-19 pandemic has triggered a world--wide economic breakdown accelerating the process of a general reshaping of international trade relations. The pandemic crisis is also leading to more aggressive and accelerating US trade and strategic confrontation with China adding to growing economic uncertainties. The trade war measures are further widening as the Trump administration is increasingly becoming confrontational with the European Union (EU) over their moves to impose a "digital tax" on revenues earned in their countries by US corporations like Google and Facebook.
In fact, political support for promoting and maintaining an open global trading system in the post Covid-19 recession appears to be getting weaker in many developed economies at a time when Washington is gearing up for decoupling the US economy from global supply chains that lead to and out of China.
Now Covid-19 pandemic has also added another perspective to the Trump administrationfor retreating from an open multilateral trading system on the ground to achieve economic sovereignty over medical and other supplies critical to national security. The Trump administration has now put its most hawkish trade adviser Peter Navarro in charge of securing the Covid-19 medical supply chain.
It is not only the US alone, according to the Financial Times more than 70 countries also have placed export restrictions on face mask and eye protection while around 50 countries have bans on exports of protective garments and gloves and 30 countries are curbing exports of sanitisers and disinfectants.
But this drive for self-sufficiency in medical supplies by the US is an integral part of a much broader trade agenda pursued within the context of Trump's "America First'' policy where trade is viewed as a zero-sum game. In pursuing this trade agenda Trump has also support of the Democrats. To achieve the policy objectives, Washington is pursuing a process of dismantling the global rule based multilateral trading system and to facilitate the return of key areas of manufacturing to the US from other parts of the world, in particular from China.
The US attempt to undermine the global multilateral trading system is primarily achieved through escalating trade war not only with China but also now with the EU and by undermining the WTO at the same time. In recent times US Trade Representative Robert Lighthizer went far beyond just threatening the EU to take appropriate and commensurate measures against the EU's digital services tax but also said that the World Trade Organisation (WTO) had failed America and also the international trading system.
In fact, the WTO being the main multilateral institution for promoting open multilateral trade globally has become the main target of constant attack since Donald Trump has become the president. The WTO has been accused of spearheading the process of globalisation and by implication, therefore, from the US perspective is primarily responsible for all the economic woes of the US.
For many there has been a tendency to see the present through the prism of the past- a slow return to the age of 19th century Mercantilism but the context and motives are very different now. It is primarily driven by behind-the-mask of national security to acquire capabilities to expand manufacturing activity onshore by reshoring them. The new manufacturing will be wholly technology intensive and technology driven enabling the US to acquire cost advantage.
There are other cost savings also in the form of transport and security of supply. Overall, the drive is towards reshaping international trade relations and supply chains in favour of the US. In essence, this is a drive to 'de-globalise' which will enable the US to bring back the key manufacturing activities back home. How this will work out is yet to be seen.
Increasing US resolve to concentrate manufacturing activity onshore in the national interest will have serious consequences for countries like Bangladesh that have built up their manufacturing base through the labour cost advantage over the last four decades or so. Countries like Bangladesh will now be faced with a prospect where its foreign customer base which will be preferring to buy domestically produced cheaper products instead of similar imported products.
China is also at the same time responding to US trade measures with its own counter measures as well as with strategic assertiveness. To counter the US drive to seize up medical supplies from around the world to deal with the spread of the virus at home, China has got engaged in 'face mask diplomacy' making donations of personal protective equipment (PPE) to countries in need in Europe and other parts of the world.
But the intensification of the US-China conflict along with the Covid-19 pandemic has now resulted in the deepest contraction of the global economy since the early 1930s Great Depression. This deep economic contraction has now resulted in most countries debt spiralling out of control. Now the growing fear is that we are slowly moving towards a post Covid-19 world which will be much poorer, conflict-ridden and dangerous.
The international Monetary Fund (IMF) has significantly downgraded its forecast for global economic growth and estimated that it would take a cumulative hit of US$12 trillion over 2020-21. The Organisation for Economic Cooperation and Development (OECD) projects rather two grim scenarios. Both scenarios are sobering and under those two scenarios economic activity does not and can not return to normal. Its growth projections vary between 6 per cent and 7.1 per cent contraction this year. According to the International Labour Organisation (ILO) this steep decline in economic activity has resulted in 130 million job losses and 80 per cent of approximately 2 billion workers in the informal sector have also been affected.
According to the WTO, world merchandise trade is set to decline by between 13 and 32 per cent in 2020 due to the Covid-19 pandemic. Merchandise trade volume already fell by 0.1 per cent in 2019 but in terms of the US dollar value the decline was 3 per cent. This decline has been attributed to trade tensions and slowing economic growth. The WTO further indicated that a recovery was possible in 2021 but that would depend on the duration of the pandemic and the effectiveness of the policy response.
The Bangladesh government is setting a target of 21 per cent growth in goods export ( US$41 billion) during the 2020-21 fiscal year (FE, July 16). But global merchandise trade has started to stall even before the onset of Covid-19 resulting from rising trade tensions and now the pandemic has hit hard to further slowdown merchandise trade flows.
In the light of the current global economic outlook and the deceleration and drop in the volume and value of international trade in merchandise, the forecast of merchandise export growth rate looks rather too optimistic. Bangladesh Bank in its latest quarterly report also outlined a number of risks facing the economy which also included low recovery in exports and remittances in the near future (FE, July 17).
The current Head of the WTO, Roberto Azevedo, abruptly announced his resignation on May 14 without explaining the reason, but as the supervisor of the global trade rules, there has been frustration all over for him causing deep despair. And that might have been the reason for his resignation. Now to compound the problem faced by the WTO, it is in the process of finding a new Director-General which will be a very challenging task in the current environment facing the WTO.
An increasingly protectionist drive under the guise of national security by the US is heavily weighing on the global rule based multilateral trading system. It is more than a viral pandemic that is disrupting the global trade flows. Former US Treasury Secretary Lawrence Summers recently opined that 'in general, economic thinking has privileged efficiency over resilience, and it has been insufficiently concerned with the big downsides of efficiency'. US economic policy planners have definitely heeded to the advice to rectify the 'limitations' of current economic thinking as outlined by Summers to enhance 'economic resilience' of the US economy instead of striving for efficiency gains by making concerted efforts to slowly but surely dismantle the global rule based multilateral trading system by undermining and rendering the WTO ineffective-- the very institution that upholds the principles of a rule based open multilateral global trading regime.
For a trade dependent developing country like Bangladesh, its economic success depends on international trade in goods and services and the flow of investment capital. Therefore, any disruption into existing patterns of trade and investment flows would be highly detrimental to the Bangladesh economy. As such an open rule based multilateral trading system remains of crucial importance to Bangladesh's economic interest and critical to the recovery of the economy in the post Covid-19 crisis. Bangladesh's commitment to multilateralism ought to be pursued both independently as well as collectively.
Despite an already weakened multilateral trading system and increasing challenges faced by the WTO, Bangladesh can show its increased commitment to multilateralism by pursuing a more liberal trade agenda than it pursues now. That will further strengthen the WTO's rule based multilateral trade agenda. Therefore, a policy reorientation is fundamental to enable Bangladesh to independently pursue its own economic interest. But at the same time Bangladesh needs also to join other countries, in particular other developing countries declaring a commitment by emphasising the importance of an open rule based global trading system and calling on developed countries like the US to roll back trade barriers to facilitate the smooth flow of trade and investment.