Coronavirus Crisis Expected to Lower Trade in Medical Supplies Years From Now

Trade restrictions created as result of the coronavirus COVID-19 crisis will change trade years from now and may lead to fewer international shipments in the medical arena, panelists said on a webinar March 26 hosted by the Washington International Trade Association.

Medtronic's vice president for international relations told the trade community that it's not just export restrictions that ventilator shoppers need to worry about. Trevor Gunn said that his company almost couldn't produce ventilators in the U.S. when the one location where they assemble circuit boards restricted the flow of people across an international border, and then only 50% of the workforce was able to make it to the factory. While he didn't name the country, Medtronic does circuit board work in Malaysia, which closed its border to Singapore, its next-door-neighbor.

Gunn said the company notified the Asian country how big a problem this was, and they put in an exception. Panelists talked about the immediate problem of export restrictions as well as how supply chains might change over the long term after the coronavirus pandemic is over.

Professor Simon Evenett, from the Swiss Institute of International Economics and Department of Economics at the University of St. Gallen, told listeners that 57 countries have put export restrictions into place because of the crisis, with eight of those bans coming in the last 48 hours. But Evenett, who is tracking these bans, said some de facto bans seem to be lifting, as China, Taiwan and South Korea are all shipping medical supplies. But where countries had bans in law, those have not been reversed, even if shipments are happening.

Because of this experience, Evenett predicted companies will reduce the length of their supply chains and the number of countries that are in them. He said location risk will lead companies to reconfigure. “Just how many links do you want in a global supply chain when just any one breaks down, you find the ability to produce the good compromised,” he asked. So he thinks there will be more regional supply chains. Moreover, he noted that some countries may give financial incentives for companies to repatriate work inside their borders.

In the short term, Gunn said, there are the difficulties Medtronic is facing when it gets dozens of calls from state governments wanting to buy ventilators, and some of those calls are very emotional. Each state is competing for itself, he said. Gunn said that while Medtronic makes ventilators, it is not one of the biggest producers of that machine. He said the media has focused on the shortage in ventilators, but there are other pieces of medical equipment as the disease progresses which are also needed in large numbers. Less sick hospitalized patients need a supply of oxygen through a nasal cannula, for instance, and he said that could be in short supply, too. And, Gunn said, the human capital needed to do intubation to put someone on a ventilator, or the factory workers to assemble goods, is also thin compared to the surge in demand.

Gunn said he would like the United Nations Office for Project Services to direct how procurement is prioritized.

Some on the panel expressed hope that down the road there would be a multilateral agreement at the World Trade Organization to eliminate tariffs on medical goods, and to reduce regulatory hurdles to their importation.

Suzana Fisher, first secretary at the Australian Embassy in Washington, said that it might be easiest to start with personal protective equipment such as gowns, face shields and masks, because the broader the medical supplies scope, the longer it will be for negotiators to agree. She said that the tariff classification for many medical supplies is opaque, with tariff numbers covering “other” or “NESOI.” So she recommends that negotiators “include customs classifications officials to make sure it's usable by customs authorities at the border.”

Wendy Cutler, managing director of the Washington office of the Asia Society Policy Institute, suggested that the WTO might want to change its approach on multilateral agreements so that the liberalization achieved is only available to participants rather than to all countries.