In my class on Personal Finance at the University of Vermont I tell students that they are very lucky. America is just 4% of the world’s population but it produces (inside our borders) 25% of everything produced in the world. America is still a powerhouse.
But with COVID-19 we have another distinction that is not so special. We are 4% of the world’s population but we account for 25% of the entire world’s COVID cases. This is a major reason the U.S. economic numbers at the bottom of the page do not look great. The U.S. economy shut down in the winter but staged a strong recovery in the spring and early summer. Now the recovery is faltering. Our inability to get the virus under control is leading to what looks like a stop-and-go, sluggish recovery. GDP may fall 8% in 2020.
Contrast this with China, which will grow this year – – albeit slowly – but grow nonetheless. China was among the earliest countries to control the spread. Very little was left to individual choice or responsibility. The strategy was to enforce a lockdown until the virus was eliminated. In Beijing for instance when there was an outbreak recently, whole parts of the city were shut down and 12 million swab tests were administered in one month.
Public health is hard work. It requires organized effort to contact trace, ensure social distancing and police the wearing of masks. The U.S. has let its public health infrastructure atrophy. China doubled down on its efforts.
China is basically back to normal today. Precautions are still being taken, masks are worn, temperatures are monitored and in many cities you are required to have a phone app listing your health as ‘green’, ‘yellow’ or ‘red’. If the app reads ‘red’ (a government algorithm does the math) you are a no – go for anything but quarantine. But otherwise, restaurants are filling up, planes are full, domestic tourism is back and factories are open.
China’s economy adjusted for inflation is approximately 70% of the U.S. today. The country was expected to reach parity with the U.S. by 2030. Now with COVID and the more rapid bounceback in China and the more tepid recovery in the U.S., parity is expected to be reached two years sooner, in 2028. There is nothing sacred about being the world’s largest economy but China’s focus on encouraging personal consumption over exports, and its ‘Made in China 2025’ project of encouraging the domestic production of as many cutting – edge high tech products as possible, does not bode well for the U.S.
Our response of trying to re-shore manufacturing and slapping tariffs on Chinese goods is not getting off to the most successful start. The New York Times reported on one small example of global trade. Hongyuan a maker of home saunas was slapped with a 25% tariff by the U.S. Still, it is able to import lumber from Canada, process it in China and ship the saunas back across the Pacific at a price cheaper than if they were made in America.
China has its problems today including mounting debt, income inequality, a troubled banking system and a housing boom that may be a bubble. They are not guaranteed economic success, and America should not attempt the draconian lockdown China implemented. It wouldn’t work here; but our democratic system with unfettered personal liberties has flailed in this national emergency. We could use a bit more of the national planning and community cohesiveness that China exhibited.
