Countries are planning to ban exports of vaccines to supply their own citizens first. That trade policy could have several unintended consequences.
With the pandemic already propagated worldwide and several countries experiencing a new rise in infections, governments are starting to focus on real solutions beyond lockdowns and masks. The most prominent of these solutions appears to be the development of a vaccine to treat the virus. However, such a cure brings with it what is called “vaccine nationalism,” which might end backfiring governments’ efforts to control the pandemic.
Vaccine nationalism refers to the action that some countries that are already producing the firsts trials of the potential vaccine could take if they decide to provide it to their own citizens first and prevent other nations from buying the antibody—the WHO has already requested countries to avoid this measure. The organization considers that no one will be safe if there are still outbreaks in other countries. Therefore, vaccination of a sole community without taking into account other countries will be a short-run solution.
Setting aside the public health implications of vaccine nationalism, the implementation of this strategy might have several trade policy consequences, similar to those affecting any other good subject to an export ban. Politicians could have the best intentions of trying to take care of people in their country with this policy. However, they are just considering the immediate effects of closing their borders to the exportation of vaccines and neglecting to consider the potential long-run impact on the whole community.
The total prohibition against exporting a specific good has the direct effect of reducing the final price of the product itself. In economic terms, holding the supply of the product constant, if the demand goes down due to the impossibility of exporting, the price will go down.
No one could be against lowering the price of a vaccine, because that way, more people will be able to buy it. However, this political intervention of the price does not come at no cost. Prices play a crucial role in incentivizing companies to produce whatever they consider profitable. They will be more willing to invest and hurry up the vaccine development if they know that the investments and efforts they put on it will be paid off in the future. If the price of the vaccine goes down because of the export ban, they might decide to reduce those investments and efforts. A 7.5 billion people market is much more incentive than a 300 million market.
There is also an issue with the efficiency of the economy as a whole when the government decides to intervene in foreign trade. As noted earlier, the prohibition against exporting a specific good decreases the incentive to produce that good. Resources and people will be diverted to the production of other goods and services that are more valuable, given the price reduction of the product that has its exports prohibited. The economy probably had a comparative advantage in manufacturing that product, but that will not be exploited fully anymore. Less efficient industries will increase in size at the expense of the most efficient ones. Therefore, the net effect is a change in the structure of the economy and a reduction of its efficiency.
Likewise, this distortion of the economy will probably happen with vaccine nationalism. A country might be relatively more efficient than another in producing a vaccine, maybe manufacturing it cheaply or with higher quality. However, resources will not flow quickly to its manufacturing if its price is held down artificially. Resources and people will be employed in the production of less valuable products, losing the opportunity to produce more efficiently a vaccine.
Restricting exports also presents an indirect consequence of decreasing a country’s imports through the reduction of its purchasing power. Exports pay for imports, and vice versa. The more a country exports, the more it should import. Conversely, reducing exports undercuts imports. Without exports, a nation cannot import. As any other family must sell some goods or services in order to get the purchasing power to buy something else, a country must export to be able to import. There resides the real gain of foreign trade. Through imports, consumers can get from abroad products at lower prices than domestically or goods that they are not capable of finding at home.
If vaccines are banned from being exported, that will mean that the country will see its imports decrease. No vaccines exported will reduce the possibility of importing, say, more ventilators, or masks. Given the novelty of this virus, countries are almost walking in the darkness. There is no certainty of what works and what does not. What happens if the vaccine ends up not working as expected? The government will see itself in a crossroads, with fewer funds to import from abroad products that it might require with urgency.
Finally, vaccine nationalism could have geopolitical consequences as well. The strategy could increase future retaliation from other countries. If the country that decides to prohibit exports of its vaccine then happens to have problems with its implementation, it will not be able to go to another country to ask for help. Again, there is no absolute solution for a global pandemic. Isolating from the rest of the world is undoubtedly the worst idea. 7.5 billion people looking for solutions is better than just 300 million people.
Banning the exportation of vaccines will bring many unintended consequences and end up being a bad strategy in the long run. Given the public attention that a potential cure for the virus possesses, hopefully, governments will understand that international free trade is the solution.
Mr. Forzani is an MA student in economics at George Mason University.
The post Vaccines Make the case for International Free Trade appeared first on Global Trade Magazine.
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