BEWARE THE IRISH-SWISS DRUG AXIS.

William Watson

The World Trade Organization, the WTO, which probably would want me to make clear it is not the WHO, released a short report last week about trade in COVID-19 related products. The stated purpose was to “provide factual information on how these goods are traded globally,” which the report does. The real purpose was to try to stop the stampede to “autarky,” which is economists’ term, derived from the ancient Greek, for countries self- isolating themselves from foreign markets. If you’re an international trade organization, protectionism is always problem one.

The study looks at many of the goods we were all oblivious to until six weeks ago but are now obsessing over, to the extent even of trying to make some of them ourselves: “disinfectants/sterilization products; face masks; gloves; hand soap and sanitizer; patient monitors and pulse oximeters; protective spectacles and visors; sterilizers; syringes; thermometers; ultrasonic scanning apparatus; ventilators, oxygen masks; X- ray equipment; and other devices such as computer tomography apparatus.” OK, nobody’s trying to make their own CT scanner but lots of us are working on masks, gloves, and sanitizing concoctions. About the only thing missing from the WTO list is toilet paper.

It does also include pharmaceuticals, though they haven’t been a big focus yet since no one knows yet what works on COVID-19.

Together, all these medical products accounted for about five per cent of world trade in 2019. Most people don’t carry around an estimate of the size of world trade in their heads so a more helpful number may be that total exports of these products were a little over US$1 trillion, which is a bit more than half the value of Canada’s GDP. So it’s big. But world GDP was over US$ 80 trillion in 2017 ( headed for about $1.99 by June) so it’s not gigantic.

A little over half this trade was in pharmaceuticals. The rest was about evenly divided between medical supplies ( 17 per cent), medical equipment ( 14 per cent) and personal protective products ( 13 per cent).

The question of the hour: Did it all come from China? The answer of the hour: No. China accounted for only five per cent of the US$ 1 trillion. The biggest exporter was Germany, with 14 per cent of the total, followed by the U. S. ( 12 per cent), Switzerland ( nine per cent), the Netherlands, Belgium and Ireland ( each with seven per cent), China and France ( at five per cent) and Italy and the U. K. ( both at four per cent). These top 10 exporters accounted for three-quarters of total world exports.

The U. S., which sets the tone on trade policy these days, gets only eight per cent of its medical imports from “Jy- na.” It gets 17 per cent from Ireland — yes, Ireland — 12 per cent from Germany and nine per cent from Switzerland.

Half of China’s medical exports are personal protective products. Medicine is only 10 per cent — though there’s a big footnote to that which I’ll get to shortly. In 2019 China accounted for a quarter of world trade in face masks and 10 per cent in ventilators. More than half of world exports in ventilators were from Singapore ( 18 per cent), the U. S. ( 16 per cent), and the Netherlands and China (both at 10 per cent).

In terms of drugs, Ireland and Switzerland, both small countries — only 14 million people between them — are very big players. Given the current state of geopolitics, with anti- China feeling beginning to rival where anti- Soviet feeling was in the 1950s, it’s only reasonable to suppose China might at some stage block access to medical supplies. In fact, last year one Chinese economist suggested his country do just that as retaliation against the Trump tariffs. In the end, China didn’t, while the U. S. tariffs exempted pharmaceuticals.

Do you suppose Ireland and Switzerland would ever do the same? Small countries that are big exporters of a product hit themselves very hard if they cut off those exports. China’s medical exports are just two per cent of its total exports. Ireland’s are 38 per cent of its, Switzerland’s 29 per cent. From them an embargo isn’t a credible threat — though if a pandemic shut down both countries at the same time, that would be a problem.

The WTO data show that world trade in medical supplies is pretty diversified. Several different countries account for important shares of total world exports — though not Canada, interestingly enough: maybe our policy- makers should take a good look at Ireland’s very favourable innovation regime, which includes low corporate taxes. But (the footnote mentioned above) the WTO data are for trade in final, not intermediate goods, such as APIS, the “active pharmaceutical ingredients” that make drugs work.

The U. S. Department of Defense estimates that 80 per cent of API output is produced in China, India and other countries the U. S. does not have free-trade agreements with. On the other hand, “there is no required registry for API sources, making it extremely difficult to gauge the extent of the risk.”

Yes, if the world has only one supplier of a vital product, the world is in a vulnerable position. But before opting for costly backups it would be only prudent to get the data. And the final answer may not be for every country to produce its own version.