While COVID-19 is most virulent today in Europe and North America, many developing countries are experiencing increasing numbers of cases (see Figure 1). The Economist warned that the pandemic could have devastating effects on developing countries. As the health crisis unfolds, some have argued that trade and trade policy can be part of the solution or part of the problem (Baldwin and Tomiura 2020, Bown 2020, Gonzalez 2020, Evenett 2020, Mattoo and Ruta 2020, Posen 2020).
Based on a new database on COVID-19 trade flows and policies (Espitia et al. 2020), we document how uncooperative trade policies can lead to shortages of critical medical supplies and higher prices in fragile and vulnerable countries most hit by the crisis so far.
Figure 1 Developing countries most affected by COVID-19
Source: World Health Organization Coronavirus disease (COVID-2019) situation report – 62 of 22 March 2020 (https://www.who.int/emergencies/diseases/novel-coronavirus-2019/situation-reports)
Developing countries depend on imports for critical COVID-19 products
The World Health Organization COVID-19 Disease Community Package (DCP) contains 17 products that are considered key to deal with the current crisis. They consist of essential items for diagnosis and treatment processes such as enzymes, hygiene products such as liquid soap and hand sanitizers, personal protection equipment including gloves and medical masks, and case management products such as oxygen concentrators and respirators.
The global markets for these crucial COVID-19 products are highly concentrated (Espitia et al. 2020). This is even more true when we focus on developing countries, as the large majority is highly dependent on imports for these products.
For the 20 developing countries with the highest numbers of COVID-19 cases, five countries account for 80% of total imports: the EU, US, China, Japan and Korea (Figure 2). For products needed for case management and diagnostics, the shares of imports from top exporters is even higher and close to 90%. Import shares for protection equipment and hygiene products are somewhat lower, but still between 50 and 60%.
Figure 2 Main sources of critical COVID-19 products for the 20 most affected developing countries
Source: Espitia et al. (2020).
Import protection contributes to tax the health systems in developing countries
Export policy is only part of the story. Many developing countries tax their own health care systems by imposing tariffs on imports of medical products. Such measures increase the domestic price of essential products, and thus reduce welfare even further.
Applied tariffs on key COVID-19 products in the 20 developing countries with the highest number of cases are on average over 6%. Personal protection equipment products such as aprons, medical masks and protective clothing are subject to tariffs of over 10%. Severely affected countries such as Iran impose even higher import restrictions of key COVID-19 products, especially for personal protection equipment.
Trade policy cooperation as part of the solution to the health crisis
To address the crisis, key medical supplies and other crucial COVID-19 products should flow freely from producers to where they are needed. Export restrictions and import protection are collectively inefficient. For developing countries, as they see the number of COVID-19 cases rise, trade protectionism will cost lives. Trade policy cooperation should first aim at preserving open markets in this difficult time.
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