Cato Scholars Say Pandemic Has Turned Trade Arguments Upside Down

Cato Institute, a libertarian think tank that advocates for free trade, acknowledged that nationalist impulses are understandable in this COVID-19 pandemic, but said that countries should be careful not to make things worse with their reactions. Simon Lester, associate director of trade policy studies at Cato, said on an April 15 webinar that protectionists usually talk about wanting to increase exports while raising barriers to import competition. But now, 79 countries have lowered their tariffs on medical goods, and many of the major economies are restricting exports of personal protective equipment and ventilators.

Lester said he's less concerned about the number of countries that have instituted restrictions -- which is also about 70 -- and more about what those restrictions look like. “Is it a ban on all exports? A mild restriction? Or just monitoring? To me, that matters a lot.”

Lester said that with the problems in getting migrant labor to plant food in Europe, and with the major outbreak of COVID-19 in a pork packing plant in South Dakota, he's getting nervous about food shortages, and said officials need to react quickly, to make sure that doesn't happen. But even if there are some product shortages, Lester said, he hopes countries don't put in export bans. “On balance, we’re going to be better off if we work together to identify who needs help the most… someday it might be us.”

Dan Ikenson, director of trade policy studies, noted that the U.S. is not among those reducing tariffs across the board (the Office of the U.S. Trade Representative has rolled back some Section 301 tariffs on medical goods), but said that before Section 301, our tariffs on medical goods were under 1%. Worldwide, the average applied tariff on medical goods is 4.8%

Ikenson said the pandemic has caused a lot of politicians and policy advocates to argue that the U.S. is over-reliant on China for either antibiotics or active ingredients in medicines. He said that while diversification is a prudent policy, the statistics that advocates use in arguing on over-reliance need to be put in perspective. Even when China is dominant in the import share, imports are a pretty small share of domestic consumption of prescription drugs. “There’s a lot of different misinterpretations of the data,” he said.

Inu Manak, a research fellow in trade at Cato, said that when tariffs are low, regulatory barriers can be a bigger problem, and that it's time for the U.S. to work to limit the difficulties of regulatory divergence. She acknowledged that consumer safety of medical devices is a “really sensitive topic,” but she suggested that the U.S. temporarily recognize Japanese, South Korean or European Union standards on vaccines and plasma-derived drugs -- those are categories that were not covered by the major advance in mutual recognition of standards in pharmaceuticals between the EU and the U.S. That mutual recognition allowed companies to have 100 inspections waived last year, she said.