Explaining trade policy responses to Covid-19: Case of Switzerland

While the shock of Covid-19 has generated draconian containment policies in virtually all countries to limit the spread of the pandemic, it also brought a plethora of trade and investment policy responses that were broadly aimed at limiting cross-border commercial ties. This essay shed lights on the drivers of trade policy responses of European Free Trade Area (EFTA) members in the wake of Covid-19. I propose that while EFTA Members’ behavior by and large followed that of the European Union and its member states, Switzerland instead resorted to trade liberalizing policies. Switzerland’s reliance on imports led to supply difficulties, which was unusually affected by tourism shopping. The mobility limitations that restricted Swiss residents’ ability to buy products across the border translated into a disproportionately higher demand in the face of relatively low supply. In turn, Swiss producers requested trade barriers to be lowered and the government responded to their request. This episode highlights the importance of linkages between mobility and trade policy – showcasing how restrictions along borders can have unintended effects that ultimately shape trade policy.

Policy Recommendations

• Policymakers need additional measures to better capture the potential impact of border shopping on consumer demand. As border regions often involve shoppers moving back and forth between countries, policymakers need to better measure the extent of trade taking place. In turn, this will allow governments to consider possible changes in supply and demand that fluctuate with border restrictions.
• Interdependence between cross border mobility and trade should be better examined. In purchasing goods and services, many consumers rely on cross border transactions and movement along borders. In such cases, restrictions on individuals’ mobility might unintentionally lead to demand increases.
• Governments need flexible instruments to enact trade policies. Possible unintended economic effects of restrictions along borders are likely to take place in times of crisis. Governments will then need to quickly adapt to the situation and thus needs instruments at hand to respond to demand and supply shocks.

Photo by H. Emre