When Coronavirus Hoarding Becomes Trade Policy

By Alex Lawson
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Law360 (March 16, 2020, 6:44 PM EDT) -- As the spread of the novel coronavirus prompts many citizens to hoard food and other supplies, national governments are beginning to follow suit, locking down sensitive exports in a move that may further constrict global supply chains.

The European Union became the latest to restrict its exports on Sunday, unveiling new rules that will require national governments to approve outbound sales of protective masks, googles, visors and garments as the trading bloc girds itself for the next phase of its COVID-19 response.

Though the EU is only requiring national approval for exports of those items, Aline Doussin of Hogan Lovells said that the rules "will act as a ban for non-EU exports" given the relatively small number of producers and the shortage of supply.

Brussels made the move unilaterally after several of its individual member states, including France and Germany, began pushing export restrictions on their own. China, India, Russia and several other countries in the Eastern hemisphere that caught the first wave of the coronavirus also imposed export restraints, to varying degrees.

While G-7 leaders issued a joint statement on Tuesday to "continue our work to facilitate international trade" amid the spread of the virus, restrictions from the EU and other nations are telling a different story.

"These governments are now behaving like some of the consumers we see hoarding toilet paper and sanitizers," McCarthy Tétrault LLP attorney John Boscariol said. "The precedent they have set is a dangerous one — other governments who may not have otherwise engaged in these measures are now going to think hard about imposing export controls because 'everyone else is doing it.'"

The EU's restrictions are intended to last only six weeks for now. But the COVID-19 outbreak has proved unpredictable and chaotic, forcing private companies and governments alike to cobble together policies on the fly. If the restrictions linger, it will leave numerous countries ill-equipped to handle the outbreak.

Simon Evenett, an economics professor at the University of St. Gallen, told Law360 that "as the coronavirus keeps moving west, so will the export curbs," adding that he would expect North American governments to enact such rules in the coming weeks. And he said history suggests they could linger on long after the threat from the virus subsides.

"If history is anything to go by — recall the mad cow disease-induced curbs on British beef — then some of the new export curbs will be in place for years," Evenett said. "Incredible pressures to local production are building, even before France and the U.S.A. have put in place industrial policies targeting this sector."

Global output was already taxed by a kind of artificial export restraint in the wake of the outbreak. China, the origin point of the coronavirus, shuttered a number of its factories to contain the spread in the early part of the year and has only just begun to reopen them.

But now, with countries voluntarily looking to constrain exports, even temporarily, the path toward economic stability is getting more difficult to forecast.

"If it lasts, there will be lingering effects," said William Reinsch of the Center for Strategic and International Studies. "Shortage in some places, more than enough in others. Irritation and resentment between countries that will spill over into other areas where cooperation is needed."

The Trump administration has not yet rolled out any new export restraints in response to the coronavirus, but it has faced criticism for another set of export restraints: its long-standing sanctions against Iran, which has been walloped by the virus.

A spokesperson for the U.S. Treasury Department pointed out that the Iran sanctions contain exemptions for food, medicine and humanitarian transactions. But Iran has nevertheless said that it is facing difficulties importing those items, accusing the U.S. of conducting a "campaign of economic terrorism."

There are also indications that the White House is looking to reduce its reliance on foreign producers and spur domestic production.

Administration trade adviser Peter Navarro told Fox News on Sunday that the White House was readying an executive order that would bind a number of federal agencies to prioritize purchasing U.S.-made drugs and medical supplies.

"We're going to put into motion a long-term trend to bring our pharmaceuticals, our medical equipment, our medical supplies home to domestic soil," he said.

Even as the coronavirus exacts a heavy economic toll, governments are generally prioritizing public health over trade policy. But the two are inexorably linked, Reinsch said, adding that governments pursuing explicit export restrictions are edging toward an adversarial path in a time of crisis.

"From a policy point of view, it's the wrong way to go," he said. "We're all in this together, and if countries start acting just for themselves, others will do the same and all will be worse off. Better to focus resources and energy on ramping up production and distributing it widely rather than hoarding it."

--Editing by Brian Baresch and Alanna Weissman.

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