John Whelan: Huge worry for Irish trade should virus continue to spread in the US

Irish trade is at risk over the spread of the coronavirus in the US, writes John Whelan.

John Whelan: Huge worry for Irish trade should virus continue to spread in the US

Irish trade is at risk over the spread of the coronavirus in the US, writes John Whelan.

The European Commission stepped in at the end of last week to try and stop the chaos in medical supply lines arising from bans or export controls by governments on medical protective equipment and certain medical supplies to favour their own populations.

Since the beginning of this year, 24 nations have imposed export restrictions on medicines and medical equipment in response to the Coronavirus, 16 of them in the first 10 days of March.

Experts in the sector have said “the pace at which governments are resorting to export restrictions is accelerating”.

In Europe, where Italy remains in lockdown with the largest number of infections outside China, it has already had to deal with the lack of supplies from the usual sources.

Germany and France had imposed limits on exports of medical equipment such as respiratory masks, gloves and protective suits, but now promise to reverse this decision under pressure from the Commission.

Russia, however, has imposed its export ban until June and the Czech government, which has placed a price cap on local sales of face masks, is banning exports of respirators and will monitor local sales.

Italy, which has more than 15,000 confirmed cases and where the death toll has exceeded 1,000, does not make face masks and has had to arrange emergency supplies from South Africa, but needs at least 10 million more, according to officials.

Limerick-based Irema, a major manufacturer of surgical and respiratory masks for world markets, gives the Irish health service a level of comfort in this virus pandemic.

However, Irema advises that demand for masks far outweighs supply, partly due to the scale of the threat, but also because of overreliance of the industry on one geographical source of supply — China — which made half the world’s masks before the coronavirus emerged there.

But it has retained the vast majority of mask factory output for itself, as well as purchasing large chunks of the world’s supply from elsewhere.

As the global spread of the virus escalates, worries about mask supplies and other vital equipment are rising due to the restriction of exports of protective gear by governments around the world which experts say could worsen the pandemic.

Early this month, Turkey imposed stringent restrictions on exports of medical protective gear in a pre-emptive measure. South Korea has banned the export of masks and materials used to make respirators while Taiwan and Thailand have banned exports to meet soaring demand.

India, the world’s main supplier of generic drugs, has restricted the export of 26 pharmaceutical ingredients and the medicines made from them, including paracetamol.

Meanwhile, Peter Navarro, the US trade adviser, has criticised countries like Germany, Russia, and Turkey for rushing to impose export controls to limit trade in medical supplies.

European Commission president Ursula von der Leyen in announcing, last week, a range of emergency financial measures to help countries tackle the economic fallout from the corona-virus, said the commission is taking action to deal with the shortage of protective equipment such as masks.

And, in a veiled reference to action by Germany and France to hold onto masks and other protective equipment for their own use, she stated: “It is not good when member states take unilateral action, because it always causes a domino effect and that prevents the urgently needed equipment from reaching the patients, from reaching hospitals.

“Ultimately, it amounts to reintroducing internal borders, at a time when solidarity between member states is needed.”

She added that France and Germany are “willing to adapt their national measures, as we requested”.

The commission announced on Friday that it will be providing guidance for member states on how to put in place adequate control mechanisms to ensure security of supply, and by launching an accelerated joint procurement procedure for these goods and issuing a recommendation on non-CE-marked protective equipment.

The latter measure will allow supplies from a wider range of global suppliers.

A further problem for the EU is that, because Italy is a member of the Schengen Agreement which allows free movement of people between most European countries, Italy and its neighbours have no permanent border controls.

Thus, there was concern that the coronavirus could spread rapidly across Europe if it is not contained in Italy.

Imposition of border controls would be hugely disruptive to the European economy.

However belated, many countries across the EU have closed their borders, Poland and the Czech Republic being the latest. Switzerland and Austria had earlier taken steps to limit rail travel from Italy.

Most airlines have stopped flights to Italy. Meanwhile, authorities are so far unable to determine how and why the virus suddenly spread so quickly in Italy. Without this information, fighting the outbreak will be more difficult.

The sudden spread of the virus far from China demonstrates the potential for global ramifications. Italy had already faced economic recession before the coronavirus reared its ugly head, and with the abrupt halt to the economy over the past few weeks is now certain to collapse.

This will present the many Irish companies who export to the market with sudden and extensive loss of sales. Italy is one of the top ten trading partners for Irish exporters who supply the market with a range of products ranging from medical devices to dairy products and telecommunications equipment to transport equipment.

The impact of the loss of the Italian market is likely to be the tip of the iceberg, as other countries around the globe affected by the coronavirus move into lock-down mode.

Most worrying is the damage to Ireland’s trade from a spread of the virus across the US, our biggest trading partner.

This would create a supply and demand shock, and will hit the Irish economy where it already hurts — manufacturing.

In light of the US announcement to suspend all flights from Europe for 30 days, this may come sooner than expected.

The question is not so much when the impact of the US shutdown will hit us, but how hard.

The European Commission has indicated that it expects the eurozone to go into recession this year. The IMF indicates that the economic impact is already visible in the countries most affected by the outbreak.

For example, in China, manufacturing and service sector activity declined dramatically in February.

While the drop in manufacturing is comparable to the start of the global

financial crisis, the decline in services appears larger this time — reflecting the large impact of social distancing.

The World Trade Organisation focuses on the major uncertainty in the global economy due to the progressive spread of the virus, with the potential to trigger a worldwide recession.

And it concludes that, most likely, the world will see rolling recessions as the disease spreads to different areas, with economic recovery emerging as the local epidemics die down.

John Whelan is managing partner of international trade consultancy The Linkage-Partnership

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