COVID-19 highlights economic sovereignty 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.

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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.

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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.


About the author: The article has been written by the Vision of Humanity Editorial staff  – brought to you by the Institute for Economics & Peace (IEP). The IEP investigates the impact of COVID-19 and future trends in economics, politics, social dynamics, conflict and development.

EDITOR’S NOTE: The opinions expressed here by columnists are their own, not those of

In the Featured Photo: Shipping Container Yard in Chile. Featured Photo Credit: australianpolicyonline, Jason Pearce.

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The Institute for Economics and Peace is the world’s leading think tank dedicated to developing metrics to analyse peace and to quantify its economic value. It does this by developing global and national indices, calculating the economic cost of violence, analysing country level risk and understanding positive peace. The research is used extensively by governments, academic institutions, think tanks, non-governmental organisations and by intergovernmental institutions such as the OECD, The Commonwealth Secretariat, the World Bank and the United Nations. The Institute was recently ranked in the top 15 most impactful think tanks in the world on the Global Go To Think Tank Index. Founded by IT entrepreneur and philanthropist Steve Killelea in 2007, the Institute for Economics and Peace is impacting traditional thinking on matters of security, defence, terrorism and development.

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