Comment on “How COVID‐19 Medical Supply Shortages Led to Extraordinary Trade and Industrial Policy”

Self‐preservation is often considered to be a natural reaction to situations to which an entity's survival is put to the test in the extreme. The Covid‐19 pandemic, which has claimed more than 4.3 million lives globally by August 2021, is undoubtedly such a situation. The exhibition of one's self‐interest at the expanse of others has taken place at different scales, from individuals engaging in panic‐buying and hoarding of household essentials to countries engaging in banning the export of personal protective equipment (PPE) and the rush to secure vaccine.

Bown (2022) provides a detailed analysis of how domestic and trade policies aimed at securing PPE supply for domestic use have impacted trade in PPE in China, Europe, and the USA. Collectively, these countries account for 29% of the world's population.

Based on Bown's (2022) analysis, there are five types of policies that directly or indirectly affect the production and trade in PPE during the pandemic. They are: (i) lockdowns (quantitative effect) which likely reduce the production of PPE for domestic and export markets, for example, China during 2020Q1; (ii) export controls (quantity effect) which restrict the exports of PPE, for example, under the Defense Production Act (US); (iii) state‐issued import directives (quantity effect) which compel domestic companies to import PPE that are produced by operations abroad, for example, the US government request on PPE imports from a 3 M factory in China; (iv) changes in import tariff (price effect) which change the price of imported PPE, for example, tariff increase under Section 301 (US) before the pandemic; and (v) production subsidies (quantity and price effects) which involve state funding to incentivize the domestic production of PPE. Even though this does not directly affect trade, it can ameliorate the impact of shortfalls in imported PPE.

Bown (2022) provides some evidence of these five policies but rightly cautions that it is often difficult to get conclusive evidence as there are many forces operating simultaneously. Estimating the welfare effects of these policies is also likely to be complicated by endogeneity issues and the intertwined nature of these policies and others. To overcome these difficulties, it could be useful to flesh out the analytics of the problem backed‐up by better data in the future.

The Covid‐19 pandemic is essentially a one‐off global (systemic) shock that drastically and simultaneously increased the demand for PPE across all countries. Given the prevailing (pre‐Covid‐19) distribution of production (mostly in China) and distribution of PPE, this shock created excess demand for PPE everywhere. The propagation of the shocks across countries varied over time and was driven by a number of factors – trade in PPE being only one factor. Of significant importance is the early impact of the pandemic on China (the key PPE producer) and China's early strong containment measures, both of which clearly affected the subsequent production and trade trajectories of PPE. These underpin Bown's (2022) point about the contribution of China to the large expansion of PPE production and exports to the USA and Europe beyond 2020Q2.

Bown also indirectly raises the issue of how the welfare effects of trade in PPE should be analyzed. A “conventional” viewpoint would involve estimating changes in consumer and producer surplus. An assessment of the welfare effects from changes in PPE trade could be complicated by the difficulties in untangling quantity and quality effects. Another complication is the different types and usage of PPE products. Based on Bown's analysis, quantity effects predominate in 2020Q2 due to the unavailability of PPE (US) but price effects became more important later. It may also be worthwhile to ponder on whether welfare analysis should go beyond the conventional approach as PPE is not your typical good in pandemic times. Access to PPE is to some extent a matter of life and death. Even if the value of life can be assessed (a controversial point), there remains the difficulty of determining how the various types of PPE products maps to population mortality. Furthermore, the path‐dependent nature of the infections could skewer the time‐discount toward the present. This would suggest that a conventional approach may underestimate the welfare effects of PPE shortages in the early stages of the pandemic.

Drawing lessons for preparedness for future pandemic is an important issue discussed by Bown (2022). He focuses on three areas – domestic production capacity, domestic stockpiling, and the diversification of import sources. State intervention is clearly unavoidable especially given the uncertainties surrounding the timing and magnitude of future pandemics. As with the problem of climate change, this will likely require a greater emphasis on multilateral cooperation. A more global approach would ensure an inclusive preparedness program. The contrast in the uneven responses and impacts of the Covid‐19 pandemic between rich and poor countries is a stark reminder of this.