When the U.S. sneezes, the world catches a cold. What happens when it has severe COVID-19?

By Howard Schneider

 

FILE PHOTO: Rental companies prepare for crowds after the coronavirus disease (COVID-19) restrictions were lifted at the beginning of May, at the start of the Memorial Day weekend in Galveston, Texas, U.S. May 22, 2020. REUTERS/Callaghan O'Hare/File Photo

 

WASHINGTON (Reuters) - During a blue-sky moment in 2018 near the end of a decade-long economic expansion, it was the United States that helped pull the world along as the extra cash from tax cuts and government spending flowed through domestic and global markets.

 

But if it was U.S. policy that pushed the world higher then, it is U.S. policy that threatens to pull the world under now as the country's troubled response to the coronavirus pandemic emerges as a chief risk to any sustained global recovery.

 

Officials from Mexico to Japan are already on edge. Exports have taken a hit in Germany, and Canada looks south warily knowing that any further hit to U.S. growth will undoubtedly spill over.

 

"Globally there will be difficult months and years ahead and it is of particular concern that the number of COVID-19 cases is still rising," the International Monetary Fund said in a review of the U.S. economy that cited "social unrest" due to rising poverty as one of the risks to economic growth.

 

"The risk ahead is that a large share of the U.S. population will have to contend with an important deterioration of living standards and significant economic hardship for several years. This, in turn, can further weaken demand and exacerbate longer-term headwinds to growth."

 

It was a clinical description of a grim set of facts: After the U.S. government committed roughly $3 trillion to support the economy through a round of restrictions on activity imposed to curb the virus in April and May, the disease is surging in the United States to record levels just as those support programs are due to expire. More than 3.6 million people have been infected and 140,000 killed. Daily growth in cases has tripled to more than 70,000 since mid-May, and the 7-day moving average of deaths, after falling steadily from April to July, has turned higher.

 

Meanwhile the country has fractured over issues like mask-wearing that in other parts of the world were adopted readily as a matter of common courtesy. With some key states like Texas and California now reimposing restrictions, analysts have already noted a possible plateau to the U.S. recovery with the country still 13.3 million jobs shy of the number in February.

 

A GLOBAL DISAPPOINTMENT

 

For other major economic powers, that is a weight added to their own struggles with the virus and the economic fallout.

 

The U.S. economy accounts for about a quarter of world gross domestic product. Though much of that is service-related, and much of the direct impact of the virus is tied up in industries like restaurants with weak links to the global economy, the connections are still there. A lost job leads to lower consumer spending leads to fewer imports; weak business conditions lead to less investment in the equipment or supplies that are often produced elsewhere.

 

Year-to-date U.S. imports through May are down more than 13%, or roughly $176 billion.

 

In Germany, whose measures to contain the pandemic are considered to have been among the most effective, exports to the United States plunged 36% year-over-year in May. Analysts see little prospect for improvement, with year-to-date U.S. auto sales through June down nearly 24% from a year earlier.

 

"That is really a disappointment," said Gabriel Felbermayr, president of the Kiel Institute for the World Economy, in a recent interview with radio network Deutschlandfunk. The spike in U.S. infections, he said, could not have been expected.

 

In Japan, the speed of the recovery is seen tied directly to U.S. success in stemming the virus.

 

"Japan's recovery will be really delayed if the spreading of the coronavirus in the United States isn't stopped and U.S.-bound exports from various Asian countries don't grow," said Hideo Kumano, a former Bank of Japan official who is now chief economist at Dai-ichi Life Research Institute.

 

PESSIMISM AT BOTH BORDERS

 

The IMF projected U.S. GDP will shrink this year by 6.6%, in line with many analysts' projections.

 

The Bank of Canada is more pessimistic, forecasting U.S. GDP to fall 8.1% on the year. That has already been lowered once as the health situation decayed.

 

A further leg down would hit Canada directly, with perhaps three-fourths of the country's exports headed over the U.S. border.

 

"We did take down our U.S. projection ... I would underline that there's a lot of uncertainty, and the principle source of the uncertainty is the evolution of the coronavirus itself," said BOC governor Tiff Macklem.

 

At the southern border, Mexico is also posting record daily numbers of new cases, but President Andres Manuel Lopez Obrador has at times deflected criticism of his government's efforts by pointing to the U.S. numbers.

 

Lopez Obrador undertook a risky visit with President Donald Trump earlier in July, couching his journey to Washington as a matter of economic necessity as Mexico attempts to revive an economy that could shrink by 10% or more this year, according to forecasts.

 

The Mexican president hopes the new United States-Mexico-Canada Agreement (USMCA) trade deal, which took effect on July 1, will spur business and investment, but pessimism about the outlook has been growing.

 

"To the point that people in the U.S. are losing jobs or incomes it is a downward weight ... and it will have ramifications on the ability to consume globally," said Elizabeth Crofoot, senior economist at the Conference Board, which documented a record drop in global consumer confidence in a recent survey.

 

"We take one step forward and two steps back."

 

-- © Copyright Reuters 2020-07-20

 

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I reckon the obvious answer is global depression and the further rise of isolationism and illiberal regimes. 

the world will isolate them /for the brainless attitude they took

china and Europe will take over to lead the world sensible 

Standard  mitigation : wash the hands, distancing, lots  of platitudes and false sympathy.

Maybe  some  "Get well soon" cards?

Hopefully the Janitor  will  disable the "Nuke em all"  button   a certain individual will be  tempted  to  push in retaliation for  yet another  failure.

Don’t panic, the USA is undergoing elective surgery in November and the prognosis for recovery after that is likely to be much better. 

Edited July 20, 20205 yr by Bluespunk

they lose visiting privileges... 

It  just  occurred to me that there is some irony in the heading of this thread.

It is  said that China  sneezed !

 

The next round of corporate financial reporting is going to be interesting - perhaps rather compelling.

It used to mean leadership compassion help and getting things done for the common good not for the last 4 years though now it’s division chaos distraction unemployment and the attempted destruction of a great democracy come November this will change and we will start the road to recovery we will rejoin the world and fight this common foe together 

Many years ago I expunged American products from my life and now have done the same with its people. Thailand should keep these dirty farangs out until every potential visitor can prove he or she has been vaccinated at least twice. The world has slowly realised that the US harbours racists, covidiots and the mentally disturbed from the President onwards. When these people evolve enough to have opposable thumbs the world might review it's attitudes. 

1 hour ago, brommers said:

Many years ago I expunged American products from my life and now have done the same with its people. Thailand should keep these dirty farangs out until every potential visitor can prove he or she has been vaccinated at least twice. The world has slowly realised that the US harbours racists, covidiots and the mentally disturbed from the President onwards. When these people evolve enough to have opposable thumbs the world might review it's attitudes. 

 

And you, sir, are from which country?  Xenophobia?

Sanction it! Can't sir...

Regime change it! No regime sir.....

Proxy war it! Impossible sir.....

 

Damn...we're out of options.......

Well for a start, Thai exports decrease.

 

31 Billion USD is 983,552,500,000 Baht.

 

And that's just to the US.

 

And they reckon GDP will only decrease by 8%? Hmmmm OK.

 

i think it says it all /the slogans and stickers around in the UK/ Americans must be accompanied by a adult

Well the way the US is going, the number of deaths will maybe help the numbers 

of the unemployed, so it may show better numbers for the genius

Trump and his great math skills. Homer,  eer I mean Donald will try spin

the covid 19 virus as the new enemy, except for those Dems and their supporters.

Geezer

2 hours ago, brommers said:

Many years ago I expunged American products from my life and now have done the same with its people. Thailand should keep these dirty farangs out until every potential visitor can prove he or she has been vaccinated at least twice. The world has slowly realised that the US harbours racists, covidiots and the mentally disturbed from the President onwards. When these people evolve enough to have opposable thumbs the world might review it's attitudes. 

So you don’t like us now?

Nah

 

 

Edited July 21, 20205 yr by J Town

1 hour ago, Isaan sailor said:

So you don’t like us now?

No. Nobody does much.

 

REM were ok for a while.......

16 hours ago, Bluespunk said:

Don’t panic, the USA is undergoing elective surgery in November and the prognosis for recovery after that is likely to be much better. 

Who'd have thought that haemorrhoid surgery could cure a country of covid-19?

Just now, ballpoint said:

Who'd have thought that hemorrhoid surgery could cure a country of covid-19?

Who's have thought the hemorrhoid would CAUSE such an unexpected deadly increase of Covid-19?

IMO the U.S needs a moment like the covid situation to be able establish a "new identity" as the old one has been dead for at least the last 20 years, and a new one needs to emerge. Ultimately the U.S economy will come back; its too dynamic not to, and it will resume its role as a global economic giant. The covid situation has exposed many cracks in the social aspect of U.S society; which have always been there, and there needs to be some healthy changes for things to continue to progress. THat being said; there is no doubt Trump and his administration are responsible for one of the biggest blunders ever my an American administration as it pertains to the covid situation.

19 hours ago, opalred said:

the world will isolate them /for the brainless attitude they took

china and Europe will take over to lead the world sensible 

The advantage that the USA has over the EU is that is a single country whereas the EU is 27 countries big.

The EU can't even agree on a rescue package for themselves let alone becoming the world's leader.

7 minutes ago, billd766 said:

The advantage that the USA has over the EU is that is a single country whereas the EU is 27 countries big.

The EU can't even agree on a rescue package for themselves let alone becoming the world's leader.

From the little I can see, it appears the federal government has abdicated on the policy and left each of the 50 individual state to make their own policy...

 

thankfully, I am in Thailand... 

2 hours ago, billd766 said:

The advantage that the USA has over the EU is that is a single country whereas the EU is 27 countries big.

The EU can't even agree on a rescue package for themselves let alone becoming the world's leader.

Well, that's your comment ruined....  https://www.bbc.co.uk/news/world-europe-53481542

 

12 minutes ago, mrfill said:

Well, that's your comment ruined....  https://www.bbc.co.uk/news/world-europe-53481542

 

Not really as I made the comment before the BBC made theirs.

Edited July 21, 20205 yr by billd766
new pc with wireless mouse and keyboard

10 minutes ago, billd766 said:

Not really as I made the comment before the BBC made theirs.

Your comment "They can't even agree on a rescue package.." - well, they did. So its not a good idea to promote fake news, is it? The agreement was obviously incredibly close and was certainly going to happen. As it did.

22 minutes ago, mrfill said:

Your comment "They can't even agree on a rescue package.." - well, they did. So its not a good idea to promote fake news, is it? The agreement was obviously incredibly close and was certainly going to happen. As it did.

Are you stalking me?

Back to OP original comment. The US is losing it's position as the world's leader. I think it will be replaced by Germany. It could have been so so different. Imagine a normal administration, like Bush W. We'd have lead the world, helped the less fortunate etc. But now we are the outcast. We blew it. Sad

5 hours ago, billd766 said:

The advantage that the USA has over the EU is that is a single country whereas the EU is 27 countries big.

The EU can't even agree on a rescue package for themselves let alone becoming the world's leader.

Yes of course and the US has no internal issues what so ever.

On 7/20/2020 at 1:40 PM, Chomper Higgot said:

The next round of corporate financial reporting is going to be interesting - perhaps rather compelling.

 

The biggest US companies now are their tech companies. With everyone staying at home and shopping online, if anything they have benefitted from COVID-19.

 

Look at the top 20 US companies - 17 are worth more than they were 12 months ago (column on the far right). Like it or not, investors are still throwing their money at big US corps.