MNI POLICY: Pandemic Fans Protectionism, Weaker Supply Chains

--Ex-World Bank chief economist sees protectionism on the rise, but failing to

solve global shortages

By Ryan Hauser

     WASHINGTON (MNI) - A prolonged Covid-19 crisis is likely to prompt a

protectionist backlash against international trade, resulting in more fragile

global supply chains and demanding resilience over efficiency for manufacturers,

former World Bank chief economist Pinelopi Goldberg said Friday.

     With uncertainty in the global crisis being as much political as it is

medical, the effects could be long-lasting, as the initial shock of the virus

reverberates in successive waves throughout the global economy, causing supply

shocks on the front end and demand shocks on the back end, said Goldberg, now a

Yale University professor.

     "Covid-19 is likely to be exploited politically and provide ammunition to

protectionists and nationalists," she told an online seminar hosted by Princeton

University's Bendheim Center for Finance. The protectionist "surge" is likely to

affect immigration and trade in services as "the borders are necessarily going

to be highly controlled" should the health crisis stretch on over months or

years, she said.

     Supply chains are likely to comprise a shrinking percentage of global

trade, said Goldberg, continuing a trend that began a decade earlier when they

"collapsed" as a result of the global financial crisis. Paying the highest price

will be developing countries reliant on trade and foreign direct investment, she

added. 

     --EFFICIENCY A LIABILITY

     Statically efficient gains like just-in-time production,

hyper-specialization, and the reduction of idle capacity and inventories have

helped ramp up global trade over the past decades, but Goldberg said this focus

has now become a "liability" in the wake of simultaneous global shocks. 

     Firms need a "new way of thinking in which resilience will feature as

prominently as efficiency," but recent calls for locally sourced supply chains

are unlikely to increase this kind of resiliency, she said. 

     "Competition for (medical personal protective equipment) was local" in the

United States, she said. It's been "state against state" and "hospital against

hospital," and emerging food shortages in domestic supply chains suggest that

there's still a strong need for overall global resiliency rather than

politically mandated reshoring.

     Goldberg said that arguments for trade restrictions going forward will

likely be justified by health concerns rather than by calls for protecting

domestic labor, she said, citing White House economic advisor Peter Navarro's

recent comments characterizing U.S. reliance on foreign goods and services as

being the "original sin" that led to domestic shortages.

--MNI Washington Bureau; +1 202 371 2121; email: ryan.hauser@marketnews.com

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