The Golden Trade Strategy

Europe, along with the majority of other parts of the world, has finally been seeing a long term fall in COVID-19 cases and most importantly deaths. In fact, the so-called “COVID free” period has been going on for so long that some even claim the pandemic is over. Whether this is the case or not will likely not be crystal clear, or at least in the near future. However, what this does mean is that epidemiologists and doctors can start shifting their focus back to diseases that have been affecting our society regularly before the pandemic.

These include common infections that are particularly dangerous during the colder months, many as simple as the common flu. While such infections are usually regarded as unharmful and are easily treatable, their statistics appear more grim. Yearly, up to 15% of the European population gets infected with influenza related viruses, with immunocompromised and vulnerable individuals bearing the highest burden of viral diseases. Additionally, common respiratory infections and influenza strains cause approximately 70,000 deaths on average just in the European Union. These numbers emphasise the importance of treating the common flu in the population, in order to minimise its spread and protect those most vulnerable to getting sick.

So, how exactly are common infections treated? Chances are, the majority of readers are already familiar with many drugs used to treat influenza strains. In less severe cases, infections are treated with similar drugs and do not yet require antibiotics. For instance, with the well known and possibly the most popular one - Paracetamol, especially here in the Netherlands. Some others include drugs containing Ibuprofen and other pain relieving chemicals. In the recent couple of months, however, the EU has been faced with severe shortages of common medicines used to treat such infections. Moreover, the issue extends beyond over the counter and non-prescription drugs. Supplies of antibiotics used to treat more severe cases of influenza strains are also running low in many European countries.

The main cause of the shortage is the fact that the majority of medicine is imported into Europe and produced elsewhere. Currently, China and India are the largest manufacturers and exporters ,producing 60-80% of the world’s pharmaceutical ingredients. Considering final products, 45% of medicines marketed in Europe are actually manufactured outside of the region. The drug manufacturing process, however, is split into multiple stages, thus forming a complex web of supply chains that allows for final production of the product. Hence, if one stage of the process in a specific part of the world is disrupted, the whole chain is automatically impacted. In such a way, globalisation has ultimately both split and tied the manufacturing process together. The production process in some countries has been disturbed by various worldwide events, such as the COVID-19 pandemic, the Russian Ukraine war and severe inflation. Particularly due to inflation, once the production of any ingredient becomes unprofitable for manufacturers, they can stop its production. This leaves buyers with few alternatives, especially considering that some parts of the production process are already monopolised by large multinational pharmaceutical corporations that thus have significant power over pricing decisions and supply timings.

On the brighter side, medicine shortages are not an unknown phenomenon for Europe. For many decades, particularly during flu seasons, individual European countries have been faced with a shortage of specific drugs and the majority have dealt with the crisis successfully. This year, the strategies being adopted are rather similar. They include calls for stricter pharmaceutical and prescription regulation of medicines, stockpiling of drugs, and considering export bans in case the crisis reaches an emergency situation. However, what is being discussed even more is Europe’s high dependency on outside manufacturers and the well observable downsides of globalisation of supply chains.

On one hand, it makes complete sense for certain countries to specialise in specific steps of the production process. Many economic models, such as Ricardo’s comparative advantage model, or the specific factors model, aim to explain the benefits of trade and globalisation for participating countries. To oversimplify it, producing in a country with the lowest production costs and greatest affinity for the product reduces overall prices and is therefore welfare enhancing for various players of our economy. This explains why our world today has become the most globalised our civilization has yet seen, and trade makes up an enormous part of many global economies.

Yet, the European medicine shortage is one of the instances proving some of the downsides of globalisation, despite the numerous models that support free and unlimited international trade. This is the reason why some countries, such as Germany, are calling to limit imports and invest in domestic companies to ensure they can secure a larger domestic supply. This strategy is actually one many countries have been turning towards following COVID-19, which emphasised the dangers of fractured supply chains. Nevertheless, it is not a new one. Some economic schools of thought, along with prominent politicians, have promoted trade restrictions and focused on stimulating domestic manufacturing by imposing export tariffs and import subsidies.

Unfortunately, these facts do not provide global leaders with information on how much to import and export, or the optimal balance of trade. The uncertainty of these decisions boils down to lack of replicable, timely data, great differences in global economies, and instability of the global political, economic and social climate. However, situations as the one described in this article further emphasise the significance of countries monitoring their trade balance accounts and ensuring vital supply chains are functioning in cases of emergency and crises.