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How Will We Reopen the Economy After the Coronavirus Crisis?

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In the coming months, policymakers will be forced to strike a difficult balance between protecting people’s health and protecting their livelihoods.Photograph by Hannah Yoon / Bloomberg / Getty

The daily coronavirus briefings of Andy Beshear, the governor of Kentucky, used to be sedate affairs. That changed on April 15th, when protesters began gathering regularly outside the window of his briefing room, in the Capitol building, in Frankfort, and attempting to interrupt the proceedings. “Open up Kentucky!” they chanted. “We want to work!” There were horns, whistles, and signs, including one that said “Quarantine is when you restrict the movement of sick people! Tyranny is when you restrict the movement of healthy people!” An activist stood on the Capitol steps and shouted, “We’re free citizens, and we can’t be told we can’t support our families. We can’t be told that we can’t work. How unethical is it of our leadership to say, ‘No, you can’t work’? It’s garbage! If you want to open your business, go open your damn business!”

Beshear, a Democrat, won the governorship by a little more than five thousand votes last November. On the first day of the protests, he paused his briefing and addressed the people outside the window, trying to appeal to rationality. “Folks, that would kill people. That would absolutely kill people,” he said. “My job isn’t to make the popular decision but to make the right decision, and the decision that saves people’s lives.” As of April 23rd, Kentucky has 3,481 confirmed cases and a hundred and ninety-one deaths from COVID-19, which puts it relatively low on the list of affected states. But Beshear’s dilemma is the same as the one facing leaders across the country. Many Americans, understandably, want to return to work. But reopening the economy would likely accelerate the spread of the virus, straining the health system, causing more deaths, and causing further economic damage. In the coming months, policymakers will be forced to navigate the complicated relationship between protecting people’s health and protecting their livelihoods.

There is no clear path for reopening the economy, and various groups have been issuing their own, competing plans. Last Friday, the governor of Minnesota announced that outdoor activities such as hunting and fishing could resume soon and that golf courses and driving ranges could reopen right away. In Texas, retail stores will be permitted to open back up for curbside shopping. But the governor of Maryland announced that restrictions there would not be lifted until there was greater access to testing, improved hospital space and equipment, and an effective contact-tracing system. In California, Governor Gavin Newsom suggested that people visiting restaurants in his state might have to have their temperatures taken before being allowed inside. On April 13th, President Trump suggested that he might force states to reopen their economies but more recently said that he would leave the question up to governors. The White House also released its own set of guidelines for how to move forward, called “Opening Up America Again.” “I think it’ll be really chaotic,” Dean Baker, the co-founder of the Center for Economic and Policy Research, told me.

Most experts, regardless of political orientation, agree on a few principles about the recovery. The first is that the longer the economy stays in its current state of shutdown, the longer it will take to get it going again, and the more protracted the economic depression that will follow. “The longer we’re shut down, the more businesses we’re going to lose, and those businesses are what’s going to create the labor demand that will soak up our unemployed workers,” Michael Strain, an economist with the American Enterprise Institute, told me. Baker added, “Some workers won’t be able to come back. There will be incredibly complicated accounting messes; all these bills haven’t been paid for two or three months. Just getting a place up and running again takes time.” The second is that the rescue programs that Congress passed in March could mitigate the damage, but only if implemented effectively, and they still won’t go far enough. (The first stage of the program, intended to help small businesses, has already run out of funds.) The third is that widespread and accessible virus testing and effective infection tracing will be needed before most people will feel confident returning to their pre-pandemic ways of life. (The guidelines released by the White House mention testing but do not address how it would become more widely available.)

Most likely, the economy will come back online through what Strain described as a “staged reopening,” with different sectors switching on at different times. “What would that look like inside a city?” Strain said. “Continuing to prevent really large crowds, maybe opening up the smaller businesses first, having fewer people inside a store at one time. Then maybe you open up the restaurants, but people are spread out.” Larger establishments, such as department stores, would follow, with the time line ideally being driven by what can be determined about the virus’s spread through aggressive testing. It is hoped that the highest-capacity venues, such as stadiums and concert halls, could reopen in the summer. Many governors have pledged to work in regional groups to insure that the transition is as smooth as possible (such plans are already under way: New York, New Jersey, Connecticut, Pennsylvania, Rhode Island, and Delaware recently joined together to coördinate reopening plans.) Strain also noted that even a staged reopening will work only if local leaders can be nimble in response to contagion levels. “If we’re able to do this well, what you should see is pumping the gas pedal and then hitting the brakes,” he said. Schools may reopen in September, for example, and then, if the virus spreads too quickly, close again for two weeks in October. Social-distancing rules in restaurants may have to be continually adjusted. “I think we’re likely to see the virus respond to the level of economic activity, and, if the response is more than we would like, we’re going to need to slow things down again,” he said. “But I don’t know if our system of government is up to that.”

One proposed plan, published by several of Strain’s colleagues at the American Enterprise Institute, outlines the possible phases of a staged reopening. The first is the one we are currently in, when the focus is on slowing the spread of COVID-19 by shutting down public spaces and ordering residents to shelter at home; Phase II occurs on a state-by-state basis, “when they are able to safely diagnose, treat, and isolate COVID-19 cases and their contacts.” During this phase, Scott Gottlieb, an A.E.I. fellow, and his co-authors write, “schools and businesses can reopen, and much of normal life can begin to resume.” Physical-distancing measures may still be in place; vulnerable individuals may still want to limit their contact with others; and much more stringent public-hygiene measures should be adopted in public places. The third phase suggests that physical distancing and other restrictions can be removed when widespread disease tracing, treatment, and vaccines become available. (Vaccine tests are under way, but nothing is expected for at least a year.) After that, the report suggests, we should focus on preparing for the next pandemic. The authors write, “After we successfully defeat COVID-19, we must ensure that America is never again unprepared to face a new infectious disease threat.”

Even after restrictions begin to lift, the economic crisis will probably be unlike anything the U.S. has seen in several decades. On April 14th, the International Monetary Fund published a report predicting that the current period will be the beginning of the “worst recession since the Great Depression, and far worse than the Global Financial Crisis.” Heidi Shierholz, a senior economist at the Economic Policy Institute, said that, while the U.S. government had taken some steps toward alleviating the damage, it hasn’t done nearly enough. She compared the response of American leaders to that of leaders in Denmark, who swiftly implemented a program to replace workers’ lost wages so that they could remain connected to their employers and could be summoned back again easily once it was deemed safe; the U.S. version, an emergency loan fund called the Paycheck Protection Program, has, so far, been riddled with implementation problems and has left many businesses that are in serious need without access to funds. “They’re getting what they need to survive the lockdown,” Shierholz said, referring to workers in Denmark. “So workers aren’t facing the trauma of job loss, which research shows can be very long-lasting, and can have effects on kids.” She went on, “We didn’t do what Denmark did. We chose not to. So we are going to be in a worse position, and we are not going to have as quick of a recovery.”

Pavlina Tcherneva, an economics professor at Bard College and the author of “The Case for a Job Guarantee,” told me that she believes the government should step in with forceful interventions, including more aggressive aid to individual families and a job guarantee through public-service projects. “The shortest distance between two points is a straight line, right?” she said. “The federal government should pay. If the problem is we need jobs, the government should create them. Hire the unemployed. It’s a very straightforward solution.” She believes that the crisis is an opportunity to reflect on economic policies that are currently failing us—such as the absence of universal health care, and tax structures that favor the rich—and to imagine a new world on the other side of the crisis. For inspiration, she suggested looking back to 1933, when Franklin D. Roosevelt took office amid the Great Depression and quickly expanded the role of the government in the economy, including by creating jobs for unemployed workers. “In two short years, Roosevelt did extraordinary things,” she said. “Look at that world of the nineteen-thirties: we didn’t have Social Security; we didn’t have a minimum wage; we didn’t have a forty-hour work week. F.D.R. came in and said, ‘Clearly the market is not solving the unemployment problem; clearly government has to come in and provide basic protections to workers.’ In two years, we did so much.”

Source: the-new-yorker

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U.S. growth slowed sharply last quarter to 1.6% pace, reflecting an economy pressured by high rates – BNN Bloomberg

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WASHINGTON — The U.S. economy slowed sharply last quarter to a 1.6 per cent annual pace in the face of high interest rates, but consumers — the main driver of economic growth — kept spending at a solid pace.

Thursday’s report from the Commerce Department said the gross domestic product — the economy’s total output of goods and services — decelerated in the January-March quarter from its brisk 3.4 per cent growth rate in the final three months of 2023.

A surge in imports, which are subtracted from GDP, reduced first-quarter growth by nearly 1 percentage point. Growth was also held back by businesses reducing their inventories. Both those categories tend to fluctuate sharply from quarter to quarter.

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By contrast, the core components of the economy still appear sturdy. Along with households, businesses helped drive the economy last quarter with a strong pace of investment.

The import and inventory numbers can be volatile, so “there is still a lot of positive underlying momentum,” said Paul Ashworth, chief North America economist at Capital Economics.

The economy, though, is still creating price pressures, a continuing source of concern for the Federal Reserve. A measure of inflation in Friday’s report accelerated to a 3.4 per cent annual rate from January through March, up from 1.8 per cent in the last three months of 2023 and the biggest increase in a year. Excluding volatile food and energy prices, so-called core inflation rose at a 3.7 per cent rate, up from 2 per cent in fourth-quarter 2023.

From January through March, consumer spending rose at a 2.5 per cent annual rate, a solid pace though down from a rate of more than 3 per cent in each of the previous two quarters. Americans’ spending on services — everything from movie tickets and restaurant meals to airline fares and doctors’ visits — rose 4 per cent, the fastest such pace since mid-2021.

But they cut back spending on goods such as appliances and furniture. Spending on that category fell 0.1 per cent, the first such drop since the summer of 2022.

The state of the U.S. economy has seized Americans’ attention as the election season has intensified. Although inflation has slowed sharply from a peak of 9.1 per cent in 2022, prices remain well above their pre-pandemic levels.

Republican critics of President Joe Biden have sought to pin responsibility for high prices on Biden and use it as a cudgel to derail his re-election bid. And polls show that despite the healthy job market, a near-record-high stock market and the sharp pullback in inflation, many Americans blame Biden for high prices.

Last quarter’s GDP snapped a streak of six straight quarters of at least 2 per cent annual growth. The 1.6 per cent rate of expansion was also the slowest since the economy actually shrank in the first and second quarters of 2022.

The economy’s gradual slowdown reflects, in large part, the much higher borrowing rates for home and auto loans, credit cards and many business loans that have resulted from the 11 interest rate hikes the Fed imposed in its drive to tame inflation.

Even so, the United States has continued to outpace the rest of the world’s advanced economies. The International Monetary Fund has projected that the world’s largest economy will grow 2.7 per cent for all of 2024, up from 2.5 per cent last year and more than double the growth the IMF expects this year for Germany, France, Italy, Japan, the United Kingdom and Canada.

Businesses have been pouring money into factories, warehouses and other buildings, encouraged by federal incentives to manufacture computer chips and green technology in the United States. On the other hand, their spending on equipment has been weak. And as imports outpace exports, international trade is also thought to have been a drag on the economy’s first-quarter growth.

Kristalina Georgieva, the IMF’s managing director, cautioned last week that the “flipside″ of strong U.S. economic growth was that it was ”taking longer than expected” for inflation to reach the Fed’s 2 per cent target, although price pressures have sharply slowed from their mid-2022 peak.

Inflation flared up in the spring of 2021 as the economy rebounded with unexpected speed from the COVID-19 recession, causing severe supply shortages. Russia’s invasion of Ukraine in February 2022 made things significantly worse by inflating prices for the energy and grains the world depends on.

The Fed responded by aggressively raising its benchmark rate between March 2022 and July 2023. Despite widespread predictions of a recession, the economy has proved unexpectedly durable. Hiring so far this year is even stronger than it was in 2023. And unemployment has remained below 4 per cent for 26 straight months, the longest such streak since the 1960s.

Inflation, the main source of Americans’ discontent about the economy, has slowed from 9.1 per cent in June 2022 to 3.5 per cent. But progress has stalled lately.

Though the Fed’s policymakers signaled last month that they expect to cut rates three times this year, they have lately signaled that they’re in no hurry to reduce rates in the face of continued inflationary pressure. Now, a majority of Wall Street traders don’t expect them to start until the Fed’s September meeting, according to the CME FedWatch tool.

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Germans Debate Longer Hours and Later Retirement as Economic Growth Falters – Bloomberg

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German politicians and business leaders, despairing a weak economy, are lately broaching a once taboo topic: claiming their compatriots don’t work enough. They may have a point.

German Finance Minister Christian Lindner fired the latest salvo in this fractious debate last week when he said that “in Italy, France and elsewhere they work a lot more than we do.” Economy Minister Robert Habeck, a Green Party representative, grumbled in March about workers striking, something a country beset by labor shortages “cannot afford.” (Later that month train drivers secured a 35-hour workweek instead of 38, for the same pay.) Signaling his opposition to a four-day work week, Deutsche Bank AG Chief Executive Officer Christian Sewing in January urged Germans “to work more and work harder.”

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Canada will take bigger economic hit than U.S. if Trump wins election: report – Global News

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Canada stands to bear a greater economic burden than the United States if Donald Trump wins the upcoming presidential election and imposes promised tax cuts and tariffs on all U.S. imports, a new report warns.

The analysis released Tuesday by Scotiabank Economics says if Trump returns to the White House and follows through on his vow to slap a 10-per cent tariff on all imported goods — with the exception of China, which would face a 60-per cent carve-out on its U.S. exports — and countries retaliate with their own, there would be “substantial negative impacts” on the U.S. economy. GDP would likely fall by more than two per cent by 2027 relative to current forecasts, while inflation would rise 1.5 per cent, leading to a two per cent interest rate hike.

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In Canada, the economic impact would be even more stark with an expected GDP drop of 3.6 per cent, given its reliance on trade with the U.S. Inflation and interest rates would also be pushed up for the next two years — 1.7 per cent and 190 basis points, respectively — the report suggests.

“What Trump is looking to do is much broader, and much more concerning, than the tariffs he imposed during his first term,” said Scotiabank’s chief economist Jean-François Perrault, who authored the report.


Click to play video: 'Canada speaking with Trump allies in U.S. to prepare for possible second term: Ambassador Hillman'

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Canada speaking with Trump allies in U.S. to prepare for possible second term: Ambassador Hillman


The report also serves as another reminder that Canada needs to urgently address its issues with lagging productivity, warning the problem makes Canada more vulnerable to economic shocks brought by trade policy changes in the U.S. and abroad.

Perrault says it’s far too late to fix the problem in time for the U.S. election in November.

“It takes a long time to change direction on productivity,” he said in an interview. “Maybe you can make up some ground over the next few quarters, but we need massive amounts of progress to get to where we need to be (to withstand U.S. economic shocks).”

Trump’s policies seen as more likely than Biden’s

Although the analysis examined the impact of policies proposed by both Trump and U.S. President Joe Biden, it focuses more on the fallout from Trump’s promises.


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That’s because they’re not only more potentially harmful, Perrault said, but also because they’re more likely to be implemented than Biden’s vow to raise the corporate tax rate.

“There’s really no appetite in the U.S. right now for any kind of tax hike,” Perrault said.

Implementing a change to the corporate tax rate would require Biden’s Democrat party to control both chambers of Congress — a scenario seen as highly unlikely, given recent polling. Trump’s proposals, meanwhile, are seen as more likely to be implemented quickly and without congressional approval, particularly his expanded tariffs.

During his presidency, Trump imposed tariffs on about US$50 billion worth of Chinese goods imported to the U.S., later expanding to another US$300 billion, sparking a trade war with China. Many of those tariffs have remained in place under the Biden administration.

Trump also slapped tariffs up to 25 per cent on imported washing machines, solar panels, steel and aluminum in 2018. Canada and Mexico were later exempted from the steel and aluminum tariffs in 2019, although the Canadian aluminum tariff was briefly reintroduced in 2020.


Click to play video: '‘No guarantees’ in trading relationship with Trump administration, Freeland says'

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‘No guarantees’ in trading relationship with Trump administration, Freeland says


U.S. government data shows those tariffs — none of which were legislated or approved by Congress — have cost American manufacturers more than US$230 billion as of March 2024 and have shrunk the U.S. economy by 0.3 per cent.

Trump has repeatedly claimed tariffs serve to punish unfair trade practices from other countries, despite agreement among economists that they raise prices for American consumers, and says he wants to expand them to 10 per cent on all imported goods from every country if he wins in November. He has also said he will seek a 100 per cent tariff on imported cars, and carve out a 60 per cent tariff for Chinese imports specifically.

The most likely scenario — a continuation of Trump’s 2017 tax cuts beyond their 2025 expiration combined with across-the-board tariffs — would see Canada’s GDP stay three per cent lower long-term, and just over one-per cent lower in the U.S.

The Scotiabank report says the economic harm from the tariffs can be reduced on both sides of the Canada-U.S. border if Canada and Mexico negotiate an exemption with the U.S. under the Canada-United States-Mexico Agreement (CUSMA), which replaced the North American Free Trade Agreement (NAFTA) during the Trump administration.

Scotiabank predicts in that scenario, Canada’s GDP would only fall by 1.4 per cent in the short term — half the drop forecast without an exemption — and 0.3 per cent in the long term, while U.S. GDP would fall 1.7 per cent and 1.2 per cent, respectively.

Perrault says he’s “hopeful” such a carve-out could be negotiated, even though Trump would likely insist on further concessions that benefit U.S. trade. That “bigger stick” approach could be somewhat limited compared to the contentious CUSMA negotiations, however.

“Trump owns CUSMA, so he wouldn’t be in as much of a position to throw it away,” he said. “So maybe we get a little bit of a break.”


Click to play video: 'Trudeau says Canada to remain the same as previous Trump term in office, should former president return in 2024'

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Trudeau says Canada to remain the same as previous Trump term in office, should former president return in 2024


The report also examines the impact of Trump’s repeated vow to mass deport roughly 10 million undocumented immigrants living illegally in the U.S., which Perrault admits would be “politically and logistically infeasible.” It would also be economically harmful, the analysis found, permanently reducing both U.S. employment and GDP by three per cent, though the impact on Canada would be negligible.

The analysis says Canada and the U.S. could see additional economic impacts due to a number of scenarios it didn’t explore, including China retaliating to tariffs by unloading its U.S. Treasury holdings; further debt ceiling and budgetary crises in the U.S.; Trump’s appeasement of aggressive foreign adversaries like Russia and China; and domestic civil disorder regardless of who wins the U.S. elections.

Perrault said the findings also underscore the key difference between Trump and Biden as Canadian trade partners.

“Biden seems to view negotiations from a collaborative approach: how can everyone come away with a win?” he said. “Trump doesn’t see it that way. He’s very much in the mindset of, ‘How will this benefit me?’”

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