Will the impact of the Chinese Virus, as it was coined by U.S President Donald Trump, hit harder, economically speaking, than in the rest of the world? Will the USA’s lack of solid social system and infrastructure, as well as lack of social benefits like paid off days, to main out-of-work individuals turn out to be the empire’s Achilles hill?
We can say with certainty that the U.S has been one of the hardest hit from a social and medical point of view when we look at the current COVID-19 data. On a total basis, as of mid-May, the U.S tops the charts by quite some distance with over 1.5 million coronavirus cases and sadly over 90,000 people who have succumbed to the virus over the last two months. Of course there are arguments that the improved testing capabilities of the U.S means that the U.S figures are significantly less missrepresented than other countries and that, due to the size of the US, it is bound to have more cases but even when we look on a relative basis to each countries population the U.S can be regarded as one of the worst off. Only spain has had more cases per million of population (5,950) than the U.S (4,688). To put this into comparison, with all the hyperbole around the early coronavirus cases in Wuhan, you might be surprised to learn China has had only 58 cases per million of its population.
On a simple level, you could say that those countries who have had the largest impact from COVID-19, will be the largest impacted economically too. Particularly whilst we have no vaccine and our only ability to combat the pandemic remains the economy-sapping social distancing measures that are wreaking havoc for businesses. But America’s problems go even deeper than that.
It’s fair to say that employee protection is not one of the U.S’ strong points. In fact, the USA is the world’s only country in which employers are allowed to grant 0 paid days off for staff (something not done in practice by employers but sets the bar to allow them to grant drastically less time off than in other countries). It has some of the weakest legilslation with regards to employee job security that allows employers to instantly relieve staff and an antiquated social security system that’s co-ordinated on both a federal and state level that makes it difficult for US citizens to access.
The number of U.S citizens who placed a claim for unemployment benefits attracted wide-spread media attention when it reached record highs of over 6 million in just one week, but whilst this has started to fall it’s still far exceeding what we saw in the 2008 financial crisis. The toll of the coronavirus pandemic on the US economy continued relentlesly last week when another 3 million people filed for unemployment benefits (compared to 188,264 claims filed in the same week of 2019) and official figures showed 40% of low-earning families have had a member of their family lose their job. The latest figures from the labor department mean more than 36 million people have filed for benefits in the last two months.
When asked about unemployment reaching 20-25% of the population the chair of the Federal Reserve, Jerome Powell said “I think there’re a range of perspectives. But those numbers sound about right for what the peak may be.” And he also estimated GDP contraction in Q2 could “easily be in the twenties or thirties… the data we’ll see for this quarter, which ends in June, will be very, very bad.”
Could the U.S. see the largest single fall in Q2 GDP of any nation? It will certainly be up there – perhaps its closest contender will be another heavy services based economy in the UK. The Bank of England’s Monetary Policy Committee had this to say “While there are wide bands of uncertainty around any estimates of activity at the present time, UK GDP is expected to be close to 30 per cent lower in 2020 Q2 than it was at the end of 2019.” Crucially, however, unemplyment is expected to reach a peak of 9% in the UK with many businesses registering for the UK Government’s furlough scheme which has enabled employers to retain staff whilst the Government pays 80% of their salary. This is some way short of the estimates for U.S. unemployment which suggest a much, much larger uphill battle on the road to recovery for the U.S.
What’s more, funding for state unemployment departments is based on recent years’ unemployment rates, and because the unemployment rate had fallen to record lows, the U.S now faces a unique challenge in responding to a crushing demand after years of scaling down departments. Unemployment trust funds, which provide money to pay out benefits, could also go broke – a concern economists have raised for years. If that happens, states would have to borrow funds from the federal government. Congress is responding though and has passed economic relief packages that include money to boost state unemployment departments’ funding and allow them to build up departments to meet demand.
In total, the U.S has now passed more than $3 trillion in emergency support measures. The sheer scale and response from the US government would suggest they themselves believe the US will be the most heavily impacted of all economies. Whether these support measures are enough we’ll need to wait and see.