Rethinking The Nation: Is Covid-19 Redrawing Borders?

The Present Contract

A nation is neither the indispensable nor irreducible unit for international trade in goods, services, or intellectual property. Rather, it is a convenient unit for striking treaties, such as at the World Trade Organization or through free trade agreements. But, the coronavirus is attacking our conventional wisdom that national units render us more secure than sub-national groupings, such as states and localities. Ironically, a disease that knows no boundaries is causing us to think about trade transactions within smaller boundaries.

Since the birth of the General Agreement on Tariffs and Trade on Oct. 30, 1947, and more so since the birth of the WTO on Jan. 1, 1995, we have been taught our inter-connectedness at the level of the nation – GATT contracting parties and WTO members – makes us better off. Multi-ethnic, multi-cultural, multi-religious societies have experienced three-quarters of a century of national assimilation plugged into multilateral and FTA networks. Our smaller, narrower identities eroded, yielding to a mindset favoring collectives like ‘India’, the ‘United States’, or the ‘European Union’.

In this process, we Indians, Americans, and Europeans contracted with our national—or, in the EU’s case, supra-national—governments: they would create wealth-generating trade opportunities for us, and we would de-emphasise negative externalities from our parochialisms as ‘Punjabis’, ‘Missourians’, or ‘Germans’.

But, contracts are frustrated if their premise, thanks to changed circumstances, turns false.

Maybe they don’t help us as effectively, particularly during crises, as we thought. Maybe building trade linkages within sub-central ecosystems is necessary for our post-pandemic health.

Politics

A defining political feature of the pandemic is citizens have lost trust in national-level governance. Americans trust Dr Anthony Fauci, but not his boss. Indians were shocked at a national lockdown on four hours’ notice. Italians chafe at the lack of support from EU officials in Brussels. No one trusts the Chinese Communist Party’s account of what happened in Wuhan, when, and why, nor its statistics on infection rates and fatalities. Even the uber-meritocratic Singaporean government goofed up in not testing immigrant workers.

If citizens don’t trust their own or other central governments, then why should they trust those same governments to secure flows of goods, services, and IP through trade deals among nations? Indeed, the governments themselves don’t trust those deals, as the WTO chronicled in its April 23 report noting that 80 countries have enacted export constraints.

But there’s another step: protectionist steps national officials take aren’t mollifying every citizen, precisely because of the trust deficit. We citizens are thinking locally.

Citizens in many U.S. states and municipalities suffer from shortages of merchandise necessary to test for and combat the coronavirus. That’s notwithstanding the national export restraints the U.S. imposed under the 1950 Defense Production Act on five types of merchandise needed to fight the coronavirus. Why else did New York Governor Andrew Cuomo declare: “We are introducing New York State Clean hand sanitizer made conveniently by the State of New York”?

So, when President Donald Trump repeats ‘America First’, Prime Minister Narendra Modi promotes ‘Make in India’, and President XI Jinping targets ‘Made in China 2025’, citizens of the Empire State, Maharashtra, and Hubei, rightly worry about dependence on a national-level supply chain, notwithstanding the efforts to decouple it from world trade.

Economics

The economic premise for greater reliance on production, exportation, and importation from one state to another, and one locality to another, within a single nation, always existed. Free trade theory took for granted that absolute and comparative advantages exist within national boundaries, because they were what Adam Smith and David Ricardo observed when they published their classical economic arguments. Yet, for thousands of years, nations weren’t the lead actors in international trade.

The modern international system of sovereign nations came with the 1648 Peace of Westphalia. Until then, the units at which trade occurred were civilisations, tribes, kingdoms, and empires, or some combination thereof. Arabs, Indians, and Chinese traded. So did Jews, Greeks, Persians, and Turks. City-states in Italy, in which Shakespeare set some of his plays, traded.

The tremendous, heart-rending plight of India’s migrant workers further undermines confidence in national production connected to international export-import relationships. That model relies on free mobility of labour within national boundaries. By definition, lockdowns affecting one-third of the world’s population mean labour is free to move neither across nor within those borders. So, any agricultural, industrial, or service sector reliant on migrant labour is temporarily afflicted, and probably permanently scarred.

Consider Punjab and Haryana, which rely on temporary skilled labour to harvest 10 percent of their wheat crop. Farmers will do well to accelerate the mechanisation of their operations—boosting their use of combines to harvest more than 90 percent—thus transforming almost completely from labour- to capital- and technology-intensive production.

To the extent they employ artificial intelligence in place of migrant workers, their wheat may be more expensive. They’ll also need additional, local storage facilities to secure their crop from rains and theft. But, they will immunise themselves against labour factor input immobility. Better to be pricier yet certain in output, than cheaper but vulnerable to harvest disruptions.

Now reverse the gaze: look at the post-pandemic world from the vantage point of impecunious workers who migrated from rural areas to factories in and around India’s megalopolises. Once they are liberated to return to their towns and village roots, will they stay in their squalid, high-density urban conditions, or round-trip to them after a brief sojourn home? Or, will India witness the greatest migration since the Partition summer of 1947? Will Mumbai, for the first time since the Bombay Plague of 1896, depopulate, as as it did from 1896-1907?

Infrastructure

America’s meat industry casts doubt on whether the design, construction, and operation of supply chains do not add up to reliable national infrastructure. Paradoxically, there exists an excess supply of beef, eggs, poultry, and pork, yet an excess demand for them. Tragically, America’s farmers are slaughtering livestock, because the nation’s meat processing facilities, located mainly in the Midwest and West, are shuttering. That’s because workers in those plants are afflicted with the coronavirus: 20 workers have died, 6,500 are infected or exposed, so 22 factories have closed. Meanwhile, grocery store shelves in far-away Eastern states are low on these products, plus food banks are short on staples such as beans, canned goods, and rice.

Compounding disruptions caused by Covid-19 outbreaks at processors are supply-chain rigidities. Many farmers are tied into distributing their crops to restaurants, hotels, and school districts, which as non-essential businesses, are closed.

President Trump, a fast-food aficionado, tried to solve the problem by invoking the DPA, declaring meat processing to be part of America’s critical national defence infrastructure. Via Executive Order, he authorised Secretary of Agriculture Sonny Perdue, to take all appropriate action “to ensure America’s meat and poultry processors continue operations”, meaning, possibly, to compel them to stay open. Predictably, and rightly, that prompted unions to ask why meat supply mattered more than worker safety. And, it prompted this vegetarian columnist to ask what meat had to do with national defense, and to see the irony that the same President, in August 2019, sent law enforcement officers to apprehend allegedly undocumented aliens working in them.

Void The Contract?

Perhaps Kansas Governor Laura Kelly, a Democrat, summarised best why, across the world, we are wondering whether to void the contract with central governments that have us bogged down in national supply chains plugged into international trade networks: “You are using a free-market model in a public health emergency, and I’m not sure those two go together particularly well.”

Maybe they don’t. Hence the increased attraction to sub-national linkages.

Raj Bhala is the inaugural Brenneisen Distinguished Professor, The University of Kansas, School of Law, and Senior Advisor to Dentons U.S. LLP. The views expressed here are his and do not necessarily represent the views of the State of Kansas or University, or Dentons or any of its clients, and do not constitute legal advice.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.