April 8, 2020

FBS, How Coronavirus (COVID-19) affects the Global Economy

Post-Coronavirus Era - How Will the Global Economy Change?

How-Coronavirus-(COVID-19)-affects-the-Global-Economy How-Coronavirus-(COVID-19)-affects-the-Global-Economy

How Will the Global Economy Change with Corona Virus?

We all know that the world won’t be the same after the coronavirus pandemic ends. But what are the changes we’re expecting to see?

We are witnessing a historic event that will change the course of our lives.

So what changes will the COVID-19 bring to the global economy?

Will it shift the economic balance of power all over the world? And in favor of which country, China or the United States?

Or will new international alliances form?

Unleash your imagination, and let’s find out what lies ahead of us together.

  1. The United States and China will realize that they need to cooperate, not fight if they want to remain the top economies.
  2. The world will be less reliant on China after the disruptions of global supply chains that happened when business life stopped in China.
  3. Countries won’t want to be dependent on imports in emergency times like that.
  4. It will take some time until the traditional relations between central bank policy and currency prices restore.

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Coronavirus Challenges Globalization

During the recent decades, we have witnessed how the world literally became a small village.

Easier travel, more open markets, multiple international trade agreements connected communities.

However, a virus invisible to the naked eye is threatening to unsettle the village’s system and destroy everything listed above.

One of the main consequences we might see after we contain this pandemic is that the world will be less reliant on China, after what global supply chains suffered when life had stopped in there.

China accounts for 16% of global output, which means that whatever is happening in Beijing will affect the whole world.

To make it clear, nearly every major car plant in the Europe was shut down due to the coronavirus and the lockdown, as they are dependent on components from China and on sales from around the world.

When both collapsed, they just stopped making cars.

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What will happen in the post-Coronavirus era?

From here, we predict what will happen in the post-Coronavirus era.

Countries will become more dependent on local supply chains and manufacturing of their own products.

Governments won’t rely solely on imports, which may collapse in times of crisis, as it happened in many countries these days.

A less open world and an increase in nationalism and isolationism, for example, what is happening in Italy with the increasing anger of the Italians about the EU abandoning them in critical times.

The Relation Between the US and China

From your PoV, which country will be the winner of the Coronavirus pandemic, China or the United States? So far, we think there will be no winner.

We don’t see what can help one of the two great economic powers to win this battle.

The US couldn’t collect any allies or form any coalition to fight the coronavirus war.

Instead, the US is immersed in an internal war between/ the Democrats and the Republicans on how to contain this pandemic.

As we saw, only in two weeks, more than 9 million Americans applied for unemployment benefits and more than 700,000 people lost their jobs in the United States due to companies’ layoffs.

Unemployment rose to 4.4%, with billions of dollars in losses on Wall Street and stock markets.

That is just the beginning of the consequences for the US economy, and the start of an economic recession that may be stronger than the global financial crisis in 2008.

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The Shifting of the Balance of Superpowers

Even China couldn’t benefit from the current situation in the US and that it’s the first country to contain the virus, as it claims.

Beijing is globally accused of the lack of credibility and transparency in terms of numbers and statistics.

Besides, the Chinese economy is severely affected by the COVID-19 virus, which will take some time to return to its nature and full power, not to mention the obstacles it might face if some countries decide to reduce its dependence on China.

Of course, everyone has now forgotten the trade war, because of the unplanned surprise, that was the coronavirus pandemic.

For Washington and Beijing to survive this stubborn virus, they need to cooperate if they want to win this battle and remain the superpowers of the global economy, out of mutual interests and despite the deep differences.

This epidemic has revealed the weak connections between the world powers, how fragile the trade deals are, and the extent of the EU strength (or the lack of it actually).

Not a single global power has distinguished itself to lead the battle against coronavirus.

Being a superpower isn’t only about power, but also about being a qualified and competent leader.

That is what we didn’t notice from the United States, China, or even one of the EU countries.

In the end, tell us how COVID-19 will change our lives and the global economy? And who will win this battle?

How will we re-open the economy?

The question right now isn’t when we should reopen the economy after the defeating coronavirus, but how we will do it, without risking a second violent wave.

So, how you open an economy that has closed its doors because of a pandemic?

Honestly very, very carefully.

Let’s examine the US and German plans to reopen their economies and see what major powers have resources to survive the upcoming recession, get COVID-19 under control, and save the economy.

Let’s compare them to find out which one has a better chance to succeed.

US Module

First, you need to know Donald Trump’s opinion about the coronavirus impact:

Hinted more than once that he wants to reopen the economy, schools, return to normal life and see employees going back to work as soon as possible, despite the warnings of his top health advisors.

Mr. Trump backed away from his desire to get life back on track after the virus outbreak in New York and other regions had threatened to destroy the entire American health system.

The reason why Donald Trump is so determined to opened the economy is: His frustration with coronavirus pandemic has been growing because the virus has robbed him of his greatest weapon to get re-elected in 2020, which is the strength of the US economy.

“We had the greatest economy in the history of the world, we had the most people working in the history of our country, almost 160 million people, far more than ever before. And then one day, our professionals correctly came to us and they said “Sorry sir we have to close down our country,”

Trump said at one of the White House news conference.

The White House’s real problem is that Trump hasn’t supported social distancing from the very beginning, but rather called for its guidelines as a result of pressure from many governors, municipal leaders, businesses and ordinary Americans themselves. Therefore, there are no guarantees that the Americans will respond to Trump’s orders just because he asked them to resume their work practices and continue.

Do you support Trump’s view that people should return to work to stop the economic losses? Or do you see it as a risk on human life with severe consequences?

Now, let’s see what the US administration has planned to reopen the economy with minimal damage.

  1. Rapid Widespread Testing
    Purpose: Making rapid and widespread testing to identify infected people quicker, even if they don’t show symptoms, and isolate them from healthy people who can go back to their work and normal lives, without any fear that they might catch the virus from.
  2. Looking for antibodies in people who were exposed to COVID-19
    Purpose: To see if healthy people, who might have been exposed to coronavirus, have developed antibodies against it.
  3. Cooperating with companies to set guidelines on how to restart operations
    Purpose: To achieve a balance between maintaining workers’ safety, opening the economy and resuming operations.
  4. Setting “red zones” and “green zones” in the US
    Purpose: To identify places that the federal government sees it’s safe to reopen, and classifying states and regions as a high, medium, or low risk, as Trump has suggested.
  5. Providing guidelines for states and local policymakers about maintaining, increasing, or relaxing social distancing rules.
  6. Tracking positive and active cases, temperature monitoring, and expressing the necessity of using facial protection.

So do you think these measures are enough to protect communities from a second wave of Coronavirus when reopen the economy?

COVID-19: Is it a Good Time to Trade?

Now, let’s move to the German module.

German Module

The IFO Institute for Economic Research said in a report written by a dozen academics that they don’t expect a vaccine or effective treatment for COVID-19 to be available before 2021.

So, Germany had to come up with a back-up plan to fight this virus if it wants to open its economy soon.

What would Germany do to restart its economy?

  1. An economic rescue package worth up to €750 billion $825 billion
    Purpose: Encourage tending to businesses and support companies and furloughed workers. This package is considered one of the biggest packages launched around the world.
  2. Creating a national tack force of expert and public representatives
    Purpose: Give recommendations on how to ease restrictions on work, enforce social distance rules on public life and when factories and industries should resume production. Going back to work would be voluntary for employees.
  3. Giving priority to telecommunications and auto-production industries
    Purpose: Telecommunications and auto-production industries should go back to operations first as they add the most value to the economy. Meanwhile, jobs that can be comfortably done from home should remain conducted remotely.
  4. Nurseries and schools should open quickly
    Purpose: Kids and young people rarely experience severe symptoms if they catch coronavirus. Parents also wouldn’t be able to work from home effectively and focus if child care facilities and schools remain closed.
  5. No clubbing… No big events… No parties
    Purpose: Companies that work in the healthcare industry should reopen as soon as possible. However, as for hotels, restaurants, and the whole tourism and entertainment sectors, they would reopen in a “very carefully and controlled manner”, due to the nature of a large number of people in these gatherings, the avoidable crowding and the struggles to keep distance in these places.
  6. Widespread testing and following the “herd immunity” theory
    Purpose: Viral testing for Coronavirus on a large scale, to indentify the safest and least dangerous regions, in terms of the number of infections and the speed of transmission, to prepare them for opening first. As time passes, high-populated regions will build up a degree of immunity, which will allow their lives to resume their lives while gradually easing restrictions.
  7. A massive increase in the production of protective clothing and masks
    Purpose: The experts recommend Germany to increase its production of clothing and masks, boost its production capacity for drugs and vaccines, and establish an information technology platform that allows for strategic planning.

In the end, after you saw the two modules; the American one and the German, which one you prefer and why?

Which one will succeed and prevent a second wave of the pandemic?

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