A group of international companies with a large presence in the US have warned that advanced economies, and particularly America, risk becoming more protectionist due to the coronavirus pandemic, raising alarm bells for the global economy.
According to a survey conducted by the Global Business Alliance, which represents US subsidiaries of groups including BMW, Nestlé and HSBC in Washington, 77 per cent of its members said they thought the US would become more protectionist on trade, cross-border mergers and acquisitions, and government procurement because of the virus.
In the survey, due to be released on Monday, 69 per cent said they believed other advanced economies would also move to impose more barriers to trade, in defiance of appeals from international economic institutions such as the IMF to refrain from protectionism.
“The US’s go-it-alone rhetoric that we hear from some quarters is definitely concerning these companies. A lot of these trends were well under way in terms of economic nationalism, not just in the US but other places as well, and the pandemic has exacerbated those trends,” said Nancy McLernon, president of the GBA. “It has unfortunately provided in some people’s minds validation for the need to look inward rather than to strengthen our connections with other countries, which is unfortunate,” she said.
Since the coronavirus pandemic began spreading around the world, many countries, including the US, have been considering measures to crack down on global supply chains, particularly in the healthcare sectors. Tensions between the US and China have spilled over into the trade arena, with US president Donald Trump suggesting the commercial truce reached with Beijing in January may be shortlived.
The US has just launched trade negotiations with the UK but has not moved to lift tariffs imposed on European metals on national security grounds, or levies on other European products in connection with an aircraft subsidies dispute.
“The only way we can get ourselves out of it, both in terms of the health crisis . . . as well as the subsequent economic one, is actually to strengthen our ties with our friends and allies, not weaken them,” said Ms McLernon. “Unfortunately, especially in election year, some of the protectionist rhetoric we’re hearing in terms of global supply chains and a sense that we need to be completely self-reliant, I think is misguided,” she added.
Hugh Welsh, the US president of DSM, the Dutch nutrition company, said the worry was that Covid-19 had provided “some air cover, a justification and anecdotal evidence” for politicians in the US and elsewhere to “create a preference for domestic manufacturing over international global trade”.
“Our biggest fear is that we are already struggling with disruptions in the supply chain as a consequence of the virus; we certainly don’t need more as a result of government protectionist action. That wouldn’t be good — not only for our business but it wouldn’t be good for consumers as well,” Mr Welsh said.
In the GBA survey, 60 per cent of respondents said the US business climate for foreign-based companies had become worse compared with six months ago and 78 per cent said Covid-19 had affected their business either significantly or moderately. While 43 per cent said their company was likely to shrink employment during the next six months, 52 per cent said they would maintain their current levels of employment.
The surveyed companies said on average they expected it would take them more than a year, or 13.7 months, to recover financially from the pandemic, while they expected the overall US economy to take 21.8 months, or almost two years. Their prognosis for the recovery time in the global economy was even worse, saying it would take 26.8 months.
Ms McLernon said that while large multinationals were suffering, they were likely to be more resilient than other companies. “They can mobilise financial resources better, they can tap into industry knowhow from around the world, get experience in other countries faster . . . politicians and others [speak of] small business, small business, and small business is certainly very important. But it’s the large companies that have the resources to weather a downturn like this and restart, whether it be through suppliers or customers.”