The Covid-19 crisis has demonstrated the fragility of many functions within society: the job market, stocks, and globalism. However, the greatest failure of this catastrophe has been the incompetence of President Donald Trump’s leadership and administration. During the most trying times, the people look to their leaders, monarchs and presidents for guidance, amenity, and resilience. Churchill brought together the British in the face of callous enemies - his war effort and capability to rationalise decisions secured victory against the more divided axis powers. George W. Bush’s immediate response to the 9/11 attacks invoked a strong sense of national hope and solidarity, an irregular bipartisan instance in modern American political history.
So why has the Trump administration been so slow and shy of taking the necessary and drastic measures to fight the spread of Covid-19, especially knowing that this could secure him another term in office? During a re-election campaign rally in New Hampshire (Feb 10th) Trump claimed:
“…looks like by April, you know in theory, when it gets a little warmer, [Covid-19] will all miraculously go away.”
He regurgitated this again after a press conference on February 19th. Despite several intelligence agencies, health, and government organisations briefing the President on the dangers of a possible pandemic, the Trump administration refuted claims that further action was required.
On February 28th in South Carolina, during another presidential campaign rally, the President haughtily lashed at the Democrats for “politicising the Coronavirus”, he continued:
“They’re politicising it. We did one of the great jobs, you say how is President Trump doing? And they go huhh, not good, not good”
Although the Democrats are guilty as charged by Trump, it is some of the only scrutiny the administration has faced over its meagre efforts in handling the situation. The Democrats have also been slow to give any sensible suggestions to administer the crisis.
Trump himself is also guilty of the same politicisation charges. The President has been continuously insulting the World Health Organisation (WHO) and its own President for praising China’s swifter (yet opaque) response to the Covid-19 crisis as well as attacking the Trump administration’s ease regarding it. On April 14th Trump cut the lifeline to the WHO, $400 million annually which makes up ≈15% of its entire budget, because it “failed in its basic duty”. In fact, Trump has praised the Chinese president on numerous occasions through Twitter and interviews on other media outlets.
During the same Charleston rally, at which point there were 15 cases in the States, Trump praised his own work and that of his administration:
“Because of the fact we won early, we won early, we could have had a lot more than that. We’re doing great, our country is doing so great.”
The current US death toll stands at 33,903 deaths, a mortality rate of 94.54 per million people, almost 35% of which is centred in New York City. These figures will almost certainly be outdated by the time you read this.
At the beginning of April, Trump ordered the conglomerate, 3M, to stop vital shipments of N95 face masks and ventilators to Canada and Latin America, plunging supply chains for both areas in a move which could overlook a magnitude of human life; particularly in the already under prepared Latin American nations. Followed by this, the President ordered 60 tons of ventilators, gowns, masks, and protective gear from Russia. The chaotic and frantic transition from ease to blocking international trade and hoarding medical supplies signifies Trump’s weak persona at inducing information and inability to make astute judgements. An order of FFP-2 masks made by the German Police force was diverted to the USA after initially heading for Germany from the 3M factory in China. The move seems to be on the scale of modern-day piracy by the United States and was attacked as ‘Wild West Tactics’ by German officials. Once again, the State’s lack of cooperation and unity with its allies, throughout the globe, is denting its public image and it will be another struggle for the nation to make up these relations once the crisis is over.
However, one response Trump’s administration has had to the Covid-19 crisis which received widespread applause is the $2.7 trillion stimulus package passed on March 25th by Congress and signed into law on March 27th. The first $350 billion of the package will be provided as loans to businesses that continue to employ workers through the crisis. The bulk of the budget however will be used to write rebate cheques for eligible persons under the CARES act, $1,200 per adult and $500 per child. The cash is meant to act as an incentive for consumers to put money back into circulation and float the free-falling economy. The remainder of the amount goes towards bailouts, other loans and leases, among other things.
Other nations' responses have been more mediated and targeted at stabilising the rates of unemployment and financing only those who are most directly affected by the economic crisis. Japan, for example, has also announced an immense $1.01 trillion stimulus package to boost the GDP by 3.8%. About $370 million of the package will be dedicated towards fiscal spending in an effort to maintain public services and provide a post lock down stimulus. Additionally, a further $18,600 will be reserved for small businesses and freelance workers to avoid undue closures. Similarly to the US, rebate cheques of ≈$2,800 will be offered, however only to those whose income has dropped: the statistical breakdown of how this will be decided remains vague. South Korea and Germany have both taken akin approaches. In the UK, Downing Street has declared it will cover 80% of employees' salaries in a furlough scheme which has now been extended till June. All the mentioned nations have struggled still but none have seen the dramatic and distressing levels of unemployment and market drops that the US is enduring.
For 3 days this strategy prevailed, then investors and the stock market re-aligned with reality, becoming attentive to the fact the pandemic was not ending today or tomorrow. Initially, the stimulus signing sent the markets into a ‘short-term bull market’, DOW (DJIA) rallied 11.4%, S&P 500 (SPX) pumped up 9.4% and Nasdaq (COMP) also gained 8.4%. These figures account for Tuesday March 24th but the rally continued high till Wednesday mid-day. Though the market tickers look green and optimistic for the current moment, $2 trillion in relief for a $20 trillion economy is not going to hold past earnings season when the markets are likely to drop as the real impact of the pandemic is revealed. Furthermore, the Trump administration’s delusions that life will return straight back to normal is not only dangerous but completely unaligned with the likely path back to normality that will take place, this will be the case for most of the globe too. On Thursday, the White House released a three phase plan for reopening the country which each state will have control over to initiate. The President claimed that 29 states said (anonymously) they were ready to start the first phase, even as the nationwide death toll remains in the high thousands.
Put differently, the problem with the US economy at the moment is unusual and rare in economic history; there is a lack of aggregate demand and supply simultaneously, because it is not only the US market that has come to a standstill but that of much of the developed and developing world thus it is too the supply chains which have failed. Spilling cash into an economy is a sufficient response when you only lack aggregate demand, similar to the 2008 crash, but it will take a lot more to overcome the recession we are crashing towards than just hurling cash flows at it which is only going to blow yield rates and increase debt to GDP ratios.
The US debt ratio was already at an alarming 106.9% in Q4 2019, the figures after accounting for the massive increase in public spending and stimulus can only be imagined. During the same quarter, the UK and Germany each recorded 80.8% and 61.9%, respectively, in government debt to GDP ratios. A Market Watch report quoted Mark Newton regarding the huge amounts of debt being built for no valid cause:
“The [Federal Reserve] and Treasury are literally throwing the bazooka at the economy and stock market,...”
Though the stimulus package is marked at only $2 trillion, the likely expenditure of the Federal Government overall could be a lot closer to $10 trillion after accounting for cut interest rates, loans, bank and industry bailouts and medical upgrades.
Having considered the minimal impact of the stimulus package on market retraction, perhaps there should have been a wider concentration on furloughing and more Neoclassical efforts such as that of Japan and the UK in allowing natural market dips. These nations have taken less focus on the immediate effects of the Covid-19 on the market levels but rather towards the rates of unemployment. It has taken well over 10 years for the United States to put the rates of unemployment, from the 2008 crash, behind it. It took just one month for those 22 million jobs to be completely wiped out. Unemployment rates in the US sat at 3.5% in February, forwards on to March, they have rocketed to 4.4% and it is only expected to increase in April and along with a high likelihood in the months of May and June.
The initial response of the Trump administration was futile and limited, allowing the spread of the pandemic throughout the nation. The later response was anarchic and damaging to its international relations. Instead, looking at the varying degrees of responses from South Korea, Japan, Germany, Norway, and the Gulf States, we could have understood how to tackle this better. Mass testing, early nationwide lock-downs enforced by heavy police presence, furloughing, temporary universal income, and negative short-term interest rates, could and should have been part of the solution. Trump should have denied the cash rebates system in favour of using the funds for early medical testing and equipment production. Maybe the human cost as a result would not have been so great. The debt piling up will cause inflation, further unemployment, high yield rates and increased taxes in the long run, this will make life unlivable for many citizens in the years to come. The deaths of tens of thousands cannot be exclusively put on Trump. However, the blood of the many more who will suffer due to his rash financial decisions, certainly should be.
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