The US, China and the Coronavirus

In a blistering speech in Michigan on July 16, US Attorney General William Barr accused the Chinese government of being “engaged in an economic blitzkrieg — an aggressive, orchestrated, whole-of-government…campaign to seize the commanding heights of the global economy and to surpass the United States as the world’s preeminent superpower.”

The blitzkrieg on America’s economy is not at the hands of Beijing but rather the administration of US President Donald Trump itself. While not downplaying China’s growing aggressiveness both against the US economy and its Asian neighbors, or its intent to thieve as much intellectual property as possible, it is the Trump administration’s multipronged attack on its own government that runs the danger of reducing the US to the status of second-rate power economically, diplomatically and strategically.

There can’t be a clearer way to tell the story of what the US has done wrong than by the mishandling of the Covid-19 pandemic via a comparison of economic figures across a wide range of sectors from GDP growth to foreign trade to jobs losses. Admittedly it requires taking Beijing’s figures on faith, and Beijing is notorious for massaging its figures. But the trend seems clear enough. China’s gross domestic product rebounded in the second quarter ending June 30 by 3.2 percent annually after contracting by 6.8 percent in the first quarter, giving a first-half GDP decline by 1.6 percent.

In the meantime, even if China’s numbers are wildly optimistic, US figures paint a contrasting picture of disaster. According to the international accounting firm Deloitte, US GDP is expected to fall by more than 17 percent in the first two quarters. The Atlanta Fed forecasts a fall over the first two quarters of 52.8 percent, with a decline in manufacturing holding back both consumption and private investment. The New York Fed puts the figure at 35.5 percent. Most economists believe such a drastic fall in GDP by even the most optimistic measure will be followed by a sharp rebound. Nonetheless, most estimates are that 2020 will end in deeply negative territory for the United States.

There is one reason for this astonishing disparity between activity in the world’s two biggest economies, and that is the draconian measures China took to corral the virus in Wuhan, with a lockdown of 17 million people. The US failure to act hardly needs explaining. Led by a president who continues to deny the danger, the pandemic is playing itself out with states like Georgia, with 10.7 million people, suing to stop the wearing of masks, the first line of defense. The US ranks no better than 13th among major nations in testing and tracing for the virus. Its death rate per million, at 484, is five times the global average of 78.7

China, whose infections appear to have stabilized at 83,000-plus with 4,600 dead, is not the only country to have largely stopped the spread of the virus. Vietnam, Thailand, Taiwan and other countries have stopped it cold and largely returned to normal. Health officials in the US are bracing for a rise in numbers that, despite President Trump’s assertion that they will suddenly fall to insignificance, show no sign of abating.

As a result of the mishandling of the virus, the US unemployment rate at end June was 11.1 percent, with 17.8 million people out of work. As the coronavirus has increased in virulence across the rural Midwest and south, the unemployment rate, which had abated by 2.2 percent in June, is expected to rise again.

But that appears to be only part of a darkening picture. According to the US Bureau of Economic Analysis, in addition to the 1Q GDP fall of 5 percent, private goods spending was off by 3.2 percent, private services spending was off by 6 percent, government spending was off by 2.6 percent.

Investment spending is expected to decline as business owners are uncertain about the prognosis along with residential construction spending, which bleeds into lower expenditure for white goods and other consumer products.

In China, according to an analysis by the Swiss investment bank UBS, “strong infrastructure investment, resilient property activity and better-than-expected exports boosted industrial activities, while retail sales recovered from March weakness.” As the US’s manufacturing plant lay largely idle, China’s market share of European Union exports leapt from 19 percent in 2019 to 24 percent in April 2020. Japan’s share leapt as well, from 23.5 percent in 2019 to 29 percent in April and May. 

According to figures from the US Department of Commerce, US exports were in free fall, decreasing by US$22.4 billion in May while China’s rose according to the China General Administration of Customs, by US$6.53 billion to US$206.81 billion.  

In sum, there is not a single aspect of the US economy that bodes well. There are predictions of recovery, most of them stemming from the idea that there has to be some recovery if for no other reason than because things are so terrible.

However, with the massive tax cut engineered in 2017 that swelled the US deficit by US$1.5 trillion, US policy options are limited, especially after the Congress, in reaction to the coronavirus, has already enacted stimulus in the trillions of dollars. According to Pew Research, US public debt for 2020 exceeded revenues by 108 percent. China’s public debt vs spending was 51 percent.  The loss of income for households and firms is likely to lead to mass defaults, according to the economist Nouriel Roubini, the famed “doctor doom” who predicted the 2008 financial crisis.

In the meantime, the totals from the virus continue to climb inexorably, by an average 60,000 infections and expectations that they will go to 100,000 per day before the year is out with a commensurate strain on an expensive and shambolic medical system.  The US had 62,879 new cases on July 20. China had 22. There is one reason for this. the administration in Washington misplayed the virus from the first and it has led to near-irreversible damage.

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