Trade Barriers Most Harmful in Times of Crisis, BOE Finds

(Bloomberg) --

Imposing new trade barriers is particularly harmful in times of crisis and nations should try to open up if they want to limit the damage to both the economy and health caused by coronavirus, according to economists at the Bank of England.

The pandemic has acted as a shock to both demand and supply, making it deeper than the trade collapse of 2008-09, a review of research published on the central bank’s staff blog Thursday found. While global value chains have amplified spillovers between different countries, protectionist measures can disrupt the production of medical supplies.

“Many governments are using trade policy as part of their toolkit to combat the pandemic,” economists Rebecca Freeman and Rana Sajedi wrote. “The imposition of such barriers can be particularly harmful during crises. Keeping trade open, and the strengthening rather than dismantling of supply networks, could help limit the economic and human cost of the pandemic and foster recovery.”

As Covid-19 spread, countries including China and the European Union moved to ban exports and hoard items like masks and ventilators. Germany stopped exports of medical equipment in early March, while the U.S. in April imposed export controls on protective items, banning American companies like 3M from overseas sales.

The findings also underscore the risks facing the U.K. outside the EU. With no free-trade agreement in place and Britain refusing to extend talks, there are concerns that the country will be forced onto World Trade Organization rules when the current transition period ends on Dec. 31.

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