The Trade Cure for the Global Economy

By Victor K. Fung *

As world leaders work to revitalize multilateralism to confront the COVID-19 crisis, they must also reshape it in a way that recognizes and reflects the many dimensions of global interdependency. This means, first and foremost, ensuring an open and sustainable global trading system.

HONG KONG – The COVID-19 pandemic has sent the world into perilous, uncharted territory from which no country will emerge unscathed. Over half of the global population is under some form of lockdown. All economies, rich and poor, are falling into recession and can limit the fallout only by working together.

China – the pandemic’s first epicenter – offers insight into the need to work together. The months-long lockdown of Hubei province, together with strict movement restrictions across the country, caused a nearly 40% drop in year-on-year industrial profits in January and February. Factories began to reopen in March, but have faced order cancellations, postponements, and payment delays, as overseas buyers struggle to cope with the pandemic’s effects.

So, even as public health is recovering, the speed of China’s economic recovery will depend at least partly on the rest of the world. Given how deeply interconnected the global economy is, this will be true for every country: even as the pandemic is controlled at home, disruptions elsewhere in the world – and, potentially, additional waves of outbreaks – will impede recovery.

Global supply chains tell a similar story. Even before the pandemic, supply chains were absorbing the impact of two years of trade disputes between China and the United States. Now, they are dealing with a combination of production stoppages, transportation disruptions, and plummeting global demand. The World Trade Organization estimates that global trade may fall by as much as 32% this year. Meanwhile, unemployment is skyrocketing in many economies: in the last four weeks, a record 22 million unemployment claims have been filed in the US alone.

It is high time we recognized how irrevocably connected and interdependent the world has become. No country can win on its own, despite what some may think. As the world confronts a severe recession and humanitarian catastrophe, nationalist political posturing is the last thing anyone needs.

The only way to minimize the pandemic’s fallout is with solidarity: to protect their own people, national governments must collaborate to develop solutions that benefit all people. The first step is to remove protectionist tariffs and other trade barriers, thereby ensuring that critical goods – especially medical supplies and equipment, and food and other essentials – are delivered wherever they are needed. Nobody is safe until everybody is safe.

Solidarity also means protecting jobs, incomes, and livelihoods everywhere. Among other things, this demands practical measures to keep small and medium-size enterprises afloat – a point that the International Chamber of Commerce (ICC) recently underscored. SMEs account for a significant share of jobs in most major economies, and provide many of the goods and services we use daily. To ensure that a general slowdown does not cause lasting structural damage, these firms must be protected.

But the imperative extends beyond propping up existing firms long enough to return to business as usual. As we chart a pathway out of the COVID-19 crisis, we should aim to create a better future, shaped not by competition, with countries weaponizing the trade and other ties that underpin shared prosperity, but by mutually beneficial cooperation.

As we work to revitalize multilateralism, we must also reshape it in a way that recognizes and reflects the many dimensions of global interdependency. This means, first and foremost, ensuring open and sustainable global trade, which is a proven means of enabling all countries – large and small, rich and poor – to achieve economic growth and alleviate poverty. Trade also underpins global peace and stability, by giving everyone a stake in the same world system.

Establishing such a system requires more than removing the tariffs, administrative impediments, and “behind the border” measures that encumber the movement of basic consumer products, industrial goods, and especially technology. Countries must recognize that either we all win – with people everywhere gaining access to the tools they need to improve their quality of life, develop industries, and innovate – or we are all worse off.

That means drastically improving access to trade finance, especially in the emerging economies, where there is a funding gap of over $1 trillion. Insufficient trade and investment finance hits SMEs especially hard, hampering their ability to expand or innovate in good times, and to survive in bad times. That is why the ICC has called on banks to boost bridge funding to companies to mitigate the worst effects of the COVID-19 crisis, and allow companies to continue to trade through a financial shortfall.

But much more needs to be done. While boosting trade finance during the 2008 global financial crisis helped to catalyze the global recovery, progress has since stalled. To ensure a sustained recovery from this crisis, and the development of a more resilient and inclusive global economy in the longer term, trade finance must occupy a permanent place on the global agenda.

Reviving multilateralism and ensuring open trade are entirely achievable objectives. They require no new laws or additional resources, only commitment and solidarity. The payoff – equitable and sustainable development – would be massive.

Humanitarian aid has long proved critical in times of crisis. Now, in the midst of a crisis gripping the entire world, all of us must recognize the importance of “humanitarian trade.”

* Victor K. Fung is Chairman of the Fung Group and a former chair of the International Chamber of Commerce (2008-2010).