CV19 Impact on Trade & Travel
“But I thought Kia’s were made in South Korea”, the confused response from many when hearing in early February that supply into Australia of Kia cars would be disrupted due to the lockdown of the Wuhan province in China. Such is the complicated nature of modern supply chains that it is more accurate to say that Kia cars are assembled, rather than manufactured, in South Korea.
Covid-19s disruption to supply chains may not yet be apparent to those of us still in lockdown and unable to get to the shops. The tight degree of co-ordination that existed between many suppliers spread across many countries has been thrown into complete disarray by the lockdown of so many countries. From confusion comes concern and the chorus from columnists that Covid-19 will change everything and that trade will never be the same again. In line with my comments on world affairs I will state a likely case for trade and travel.
The economic benefits of trade are unquestionable and have contributed to the global increase in wealth experienced in the last 70 years. Some communities, in both wealthy and poor nations, may have lost more than they gained, but the benefits are overwhelming, so trade will continue, and the changes that occur will only be by degree.
Covid-19 will disrupt the ability for nations to trade for a little while, but not the overall desire for trade. However there will be some ongoing ramifications. The pandemic has highlighted the exposure that each country has to complicated supply chains, and the heavy reliance on a small number of countries for inputs into the production of goods; each of these exposures will be a focus for countries with well developed economies.
The laissez faire or hands off approach many governments have had to monitoring the make-up of the supply chains of the corporations providing goods and services into a country will change. The focus on supply chains will have two main drivers: the resilience available through diversification, and the behaviour of China throughout this crisis.
Governments will seek a diversification of the supply chains both within the supply of particular goods, and across a range of goods; for example, no single country will be allowed to be the single source of supply for an input into the manufacture of particular goods. Within this view there is an implied acceptance of higher cost for a greater security of supply, which will be acceptable for a short period after the pandemic.
A shift to enforceable rules on the makeup of supply chains and the monitoring required to support it can only be achieved by a higher degree of central planning of economies than we have seen previously, making the implementation of supply chain diversification ideologically challenging for many governments as it will extend the degree of influence of the government into the management of corporations, and will reduce the efficiency of production by forcing some companies to source products from less efficient producers impacting their sales and profitability.
The desire to strengthen the security of supply chains will also result in a call for goods to be manufactured locally but this will only be for some items, medical supplies for example. Any localised manufacture will require government subsidisation. Or, companies may be paid to create and maintain the ability to quickly switch to manufacturing critical goods as a way of providing an ability to respond to crisis of the future.
While trade has been disrupted – travel has been terminated. The disruptions to trade can be managed by the logistics departments of major corporations as they attempt to manage around the closure of particular factories. International travel though, that’s another matter entirely. Widespread travel will eventually return but it will take some time to work through the questions of who can fly, where will we fly, and will there be anybody to fly us?
Obviously, but worth stating, we must first be allowed to leave our homes, and the restrictions of movement within our own countries lifted. The current rules that restrict us to our homes and our immediate vicinity have two drivers: they limit the potential spread of the virus, and they also limit the responsibility of a jurisdictions health system to only cater for people within that jurisdiction. These two drivers will shape travel for some time, but not forever.
Each country will be torn between the economic benefit of allowing travel, and the potential economic and health costs of travellers re-introducing the virus so it will not be as simple as banning travel until the virus has been controlled through vaccination.
Until easy to administer and reliable testing is available countries will not open their borders universally, but only to selected countries. Most likely the countries will be selected where there is symmetry in the progression of the virus, for example, both the proportion of the population infected and the ongoing infection rate. In line with my comments in The Impact on World Affairs, bilateral agreements will be struck based on a high degree of trust. An additional condition may be that each country have a matching set of bilateral agreements; for example, Australia may allow travel to New Zealand but will not allow travel to New Zealand if New Zealand allows travel with Iran, and Australia doesn’t.
This situation will exist until testing is easily available, until there is confidence that whoever boards a plane is virus free at time of departure. Improvements in testing allow for a significant increase in travel but it may not be sufficient for it to occur – who will board a plane before a vaccine is available?
Testing provides governments with the option to allow travel, but it will take widespread vaccinations to occur before people will be willing to travel. Then, the expansion of travel will be limited by its price and the level of incomes after the pandemic. The price of flying will rise, as international flying is a thin margin high volume business. The propensity for flights to be subsidised by nations heavily reliant on tourism may rise as immunity increases.
When most people think of the impact of Covid-19 on travel, they think of holidays; that’s because most people aren’t migrants or refugees. Immigration will follow a similar pattern to general travel with a number of exceptions. The plight of refugees is decidedly grim.
Long term immigrants will be allowed to arrive once restrictions on travel begin to be lifted. An arriving immigrant will be subject to the same testing procedures and placed in quarantine if required. A two week quarantine is palatable if your intention is to remain in Australia long term – it is of far greater impact if you are only here for a 4 week holiday. The cost of quarantine though will no longer be borne by Australia, but by the immigrant. This will continue until vaccination is widespread.
Short term immigrants will be impacted. Australia has been staffed by a growing number of workers on short term visas allowing companies to win contracts based on off-shore pay rates but with on-shore staff. Often the engagement of particular staff can be arranged at short notice, eg 1 month, and only stay for short periods eg 1-2 months. This resourcing model cannot survive until widespread vaccination is available. Even easy availability of testing will not be sufficient for the re-start of short term visa workers – the dislocation and cost of staff being detained in quarantine will be too high a hurdle.
There is never a good time to be a refugee; now is definitely a bad time. If in the next 18 months a large number of people seek refuge in another country they will not find it; the borders will be closed. Which country, with its health system either straining or broken, will allow a large number of people with indeterminate viral status to enter their country. To be clear, it gives me no pleasure to write that, or even to think it, but it is easy to imagine violence at border crossings. I am being predictive, not prescriptive.
The plight of refugees trapped in migrant camps between borders remains hopeless. Prevented from moving forwards to another country, unwilling or unable to return to their original country, they are horribly exposed to the impact of this virus, and will remain stateless for some time; creative solutions for resettlement only possible once vaccinations are widely available.
The termination of travel by Covid-19 is temporary. The sight of hijacked commercial airlines crashing into the World Trade Centre and subsequent attempted sabotages were not enough to lessen our appetite for international travel, nor will Covid-19. Once borders are re-opened travel will take off among the young and the brave, followed eventually by the old and the careful.
