COVID-19 highlights self-reliance in countries

A plunge in international trade during the pandemic has shown how some countries may benefit from already high levels of economic sovereignty.

The pandemic has highlighted the advantages and disadvantages of relying on international trade versus fostering economic sovereignty.

Economic sovereignty gauges a country’s ability to cater for its domestic market without depending as much on other nations.

Imports plus exports, expressed as a proportion of gross domestic product (GDP), is one indication of how much a country relies on international trade to maintain its economic wellbeing.

This graph shows that countries such as the US, Brazil, Japan and China have large domestic activity and operate with a high degree of economic sovereignty. Similarly, the import content of exports measures the share of exports that was not produced domestically. This is also a measure of economic sovereignty. Countries whose exports come largely from reprocessing or re-shipping products from other countries are highly dependent on international trade. This is the case for Mexico, South Korea and some smaller European economies.

Some governments have started to include economic sovereignty considerations in post-pandemic recovery plans, as a reliance on international trade led to major disruption. For example, Japan and India launched a program to help companies shift manufacturing from China back domestically or to other countries. In the US, the government and companies have been discussing how to bring some manufacturing back inside US borders. For example, Intel has committed to building more manufacturing plants in the US.

Traditionally, companies have sourced inputs from the cheapest foreign suppliers, which led to a decline in domestic manufacturing, especially in Organisation for Economic Cooperation and Development nations. In addition, administrative techniques to minimise inventories, for example just-in-time or pull-through production,that modern manufacturers operate with paper-thin inventories and are therefore vulnerable even to short-lived disruptions.

Vision of Humanity

Editorial Staff

Vision of Humanity is brought to you by the Institute for Economics and Peace (IEP), by staff in our global offices in Sydney, New York, The Hague, Harare and Mexico. Alongside maps and global indices, we present fresh perspectives on current affairs reflecting our editorial philosophy.