Border closures aimed at containing the spread of the coronavirus may offer a glimpse of what an all-out trade war would do to the world economy, according to the head of the International Chamber of Commerce.

ICC secretary general John Denton also called on China – where the number of virus cases has dwindled – to continue with its market reform process once the Covid-19 pandemic was over.

“What you are seeing in a way is kind of an avatar for what happens with protectionism,” Denton said during an interview in Paris, where the ICC is based.

“You’re seeing borders being closed, goods being redirected, supply chains being redesigned, whole sectors of the economy feeling the impact of the closing of borders.

“And if you think about a full-blown trade war, that’s actually what happens,” he said. “I don’t speak in apocalyptic terms – all I’m saying is that it’s an interesting parallel to be drawn.”

How China is containing the spread of the coronavirus

The world’s biggest economy, the United States, has banned travellers from China and Europe, as President Donald Trump announced a national state of emergency last week.

Meanwhile, at least four European countries have closed their borders, preventing people from arriving or leaving. Italy – the country worst-hit by the coronavirus outside China – is on a nationwide lockdown, affecting some 60 million people, and 

Denton said border closures would bring economic challenges to tourism, education and other service sectors.

“If this is persistent, then people would start to rearrange their lives,” he said.

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But he praised the Chinese government’s response to the crisis as “strong” and “determined”. The lockdowns in Europe follow similar drastic measures taken by China in Wuhan, where the outbreak started, and other cities in Hubei province.

Europe is now the epicentre of the pandemic which has claimed over 5,800 lives worldwide since it began in December, with more than 152,000 people infected.

The ICC chief said once the public health crisis was over, Beijing would need to keep its economic reform going.

The pandemic “is no doubt a huge interruption, but I still would expect that the Chinese reform agenda as has been outlined will continue to be prosecuted by the leadership, because it’s in China’s interest to do so”, Denton said.

“A lot of the reforms that are required don’t need to be negotiated with anyone outside China. They can be decided unilaterally,” he added.

Trump on Friday said in a press briefing that negotiations would start on phase two of a trade deal between Washington and Beijing that will seek to address issues like market access, state-owned enterprises, intellectual property protection and an enforcement mechanism. The two sides signed an interim deal in January, the first in a series of agreements intended to end a bitter conflict that has seen tariffs imposed on hundreds of billions of dollars worth of trade.

Unpacking the ‘phase one’ deal for the US-China trade war

The European Union is also negotiating with China on an investment agreement, but progress has slowed amid the coronavirus crisis, adding to uncertainty over whether a deal can be reached by September, when Chinese President Xi Jinping will attend an EU summit in Leipzig, Germany.

The EU has said it would set out a plan to protect “fair competition”, a proposal apparently aimed at China’s state-backed companies. Beijing has been criticised for building up state-owned enterprises at the expense of private companies under Xi.

“We are always interested as to whether the reforms we’re seeing in China are going to be able to maintain or provide a pathway to the kind of growth patterns required for China to be successful,” Denton said.

China’s economy has moved further away from years of double-digit growth. Last year it expanded by 6.1 per cent, the lowest growth rate since 1990, and now the country is bracing for the economic impact of the coronavirus.

Source: South China Morning Post

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