Coronavirus and the free trade narrative

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I am less optimistic than Pierre Lemieux:
the epidemic shows the benefits of economic growth and international trade. By strangling Chinese growth (“deepening economic damage,” says the Wall Street Journal of yesterday) and perhaps also, if it becomes a pandemic, economic growth in other countries, and by slowing down international trade, the coronavirus will give a hand to the autarkic and zero-sum-game vision of the US administration. No need for a trade war if a pandemic does the job. Trump, of course, will claim that the economic problems he has created were instead caused by the epidemic: untruth does not require coherence. Let’s hope that many people will see that the lessons of the epidemic are quite different.
The fact that I write from Milan may explain my pessimism. So far the Italian government has reacted to the coronavirus crisis with some containment measures: basically, some areas in the North of the country, apparently the hotbeds of the contamination, were locked down. The quarantined area is small but universities, schools, theaters are closed in Lombardy and Veneto, by all means the most productive regions in the country. Other Regions have followed suit, applying a precautionary principle. When you consider that Lombardy, Veneto, Piedmont, Liguri and Friuli account for about half of Italy’s GDP, you understand how serious the situation is.
So far, there seems to be a consensus that the virus brings a much more serious disease than a normal flu, but it is not as deadly as SARS or the swine flu. Out of 100 recorded cases of COVID-19, 80 seem either to show no symptoms or to recover quickly, 15 have severe consequences, and 5 end up in intensive care with breathing problems. The 14 people who have so far died in Italy (over 528 cases, as I write) had pre-existing conditions, which became unbearable with the virus. The reason for containment measures is to slow down the pace of the virus’ spread, to avoid facing a crisis of capacity on the part of hospitals able to offer intensive care. Online, it is quite easy to run into videos supposedly shared by Chinese whistle blowers, full of pictures one would rather not have seen. I suppose part of the problem lies in the fact sanitation is rather different in China than in the West, and healthcare infrastructure is not as developed as in the wealthier, Western world. Or so I hope.
By all means, the emergency is producing and will produce a less interconnected world, and so a poorer one. In this Wall Street Journal piece Joerg Wuttke, president of the European Union Chamber of Commerce in China and chief local representative for BASF SE.), comments that, “When the last ships reach our harbors in a week or 10 days, that will be it from China…Then you will see shortages on the shelves of Europe. The impact has not really been felt yet.”
The effects of shutting the North of Italy down for a month are not that different: for companies and workers here, but also for companies abroad, beginning with Germany, whose supply chain is highly integrated with the Northern Italian one. So far it is “services” that have mostly slowed down, but if people can’t send their kids to school this will affect their working time and their performance, too. Fear of contagion will drive tourists away from Italy, with strong consequences both for hotels and AirBnB owners. The Italian economy was already quite weak, with a meager +0,2% GDP growth projection and a government busy at nationalizing whatever possible, God knows what may happened to it now. There is already a consensus that Italy will have negative growth this year.
Will people learn the lesson, and realize that a closed economy is poorer, as Pierre hopes? I fear not. Though the emergency measures somehow provide us with a preview of the kind of country the economic nationalists would like us to live in, they will quickly turn the tables, blaming the virus on globalization, and making trade with China the villain of the story. Italy’s reaction to coronavirus is convincing other countries to treat Italians as we treat ourselves – limiting direct flights, imposing quarantines, etc. This will also increase the perception that reliance on international trade is a weakness, thereby fueling a renewed rhetoric of the marvels of autarky. Sure enough, when people travel they carry their diseases with them: this is not news. Prepare for a new nationalist narrative built around this idea.

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