Coronavirus’s Economic Impact in the United States and Possible Policy Responses

The spread of the coronavirus can affect practically every area of the economy, necessitating temporary government measures.

Even if the virus cannot be stopped, the economic dangers posed by its propagation can be contained.

A novel coronavirus, which causes the illness COVID-19, is an example of an epidemiological hazard that might affect the economy. It can disrupt global supply chains, making it more difficult for American businesses to fulfill orders. Most American businesses also don’t have enough money to continue doing their businesses. Fortunately they may get a loan help from GreenDayOnline.

According to Kristalina Georgieva, Managing Director of the International Monetary Fund, the epidemic is the world’s “most urgent uncertainty.” Lower values and increasing volatility in the financial markets reflect the virus’s economic disruptions and heightened uncertainty. While the actual impact of the coronavirus on the US economy is uncertain, it is evident that it presents significant dangers.

As a result, policymakers should take a variety of initiatives right once to mitigate the potential economic consequences of the virus. Congress and the Trump administration bear the brunt of tackling this problem. The Federal Reserve deserves credit for aggressively cutting interest rates. Still, monetary policy will likely have a limited impact since interest rates are already low and have been for some time. CAP advises that Congress and the Trump administration participate in fiscal stimulus and adopt five essential principles for economic policy action in response to the coronavirus to get the US economy back on track:

1. Do not do any damage.
2. More resources, not less, should be invested in public health initiatives.
3. Assure companies that everything will be alright if the virus strikes their industry and repair any damage that occurs.
4. Financial markets are calm.
5. Reduce the hazards for vulnerable people and families.

Even if the virus cannot be stopped, the economic dangers posed by its propagation can be contained. To guarantee that the US economy has a more secure future, Congress and the Trump administration will need to act promptly and adequately express their actions.

COVID-19’s economic effect is being assessed.

To analyze the potential economic effect of the coronavirus, it’s crucial to consider not just the virus’s epidemiological profile but also how consumers, companies, and governments could react to it. COVID-19 will have the most significant direct impact on economic losses through influencing company investment, household spending, and international commerce via supply chains, demand, and financial markets. And it will do so in both typical supply-and-demand ways and by introducing potentially significant amounts of uncertainty.

Furthermore, people, businesses, and governments are now in more outstanding debt than before SARS. The non-financial corporate debt of significant corporations in the United States, for example, is now about $10 trillion, up from $4.8 trillion in 2003. Except for World War II, Deutsche Bank’s study shows that the world’s leading economies have had the most significant debt levels in the last 150 years. Even if employment, consumers, and tax revenues drop in a deteriorating economy, they must all continue to service that debt. As a result of these fixed expenditures, less money will be available for other purposes. Large quantities of debt may worsen an economic downturn, mainly if central banks cannot alleviate the load by lowering interest rates.

Supply chain interruptions make it harder for American companies to complete their goods.

One of the coronavirus’s most visible consequences is the disruption of global supply systems. There have already been severe disruptions in global supply networks, with the list of firms outside of China obliged to reduce output at their factories becoming longer by the day.

As previously stated, China has shut down enterprises in virus-affected regions as a precautionary measure, creating supply chain disruptions and impacting migrant workers’ mobility and near-term job prospects.

These snarls have the potential to expand much wider. Because the virus has spread outside of China, many employees throughout the globe may probably be unable or unwilling to go to work, significantly limiting economic activity. For example, a virus epidemic in northern Italy has forced the closure of a company that supplies electronic components to automakers across the European Union, implying that car facilities in various nations may be forced to shutter. This supply chain disruption to intermediate goods providers outside of China would make it more difficult for US companies to replace lost inputs from China with products from other nations.

The extent to which this impacts US businesses will be determined by how well they manage their supply networks. Many companies keep the delay between requiring fresh materials from China and integrating them into their products as short as possible—often weeks rather than months. Factory closures in China will have an immediate impact on these businesses. These issues impact not just established companies like automobile manufacturers but also high-tech sectors like smartphones and computers. 

Consumers are purchasing fewer items because they are concerned about the virus’s spread.

Because of the overall implications on the economy, the virus will influence supply, but specific sectors of the US economy may see falls in demand—and significant revenue losses. There are two different consequences to think about. Individuals would purchase fewer products and services, for starters, because they are terrified of contracting the virus. They may be less likely to travel or dine out, for example. As a consequence, plane travel and hotel accommodations may be severely impacted. Already, there seems to be a decrease in demand for the food and beverage businesses. As Americans become more concerned about the virus’s spread throughout the nation, they will likely cut down on certain purchases and instead raise their emergency funds.

Second, when businesses are forced to shut down, employees are likely to get less compensation than they would have anticipated and, in some cases, no income at all. Consequently, these employees will have less money to spend, reducing total demand once again. A drop in order after a supply shock is a one-two punch that reduces economic activity even more, albeit the magnitude of these impacts is uncertain.

Uncertainty about the virus and its economic consequences may be detrimental to the economy.

Risk-taking is a fundamental engine of the economy, but an economy can only function if risks are well understood. On the other hand, unknown dangers or uncertainties might have a more significant and more paralyzing impact.

Five economic ideas to guide policy in the aftermath of the coronavirus

The coronavirus puts pressure on policymakers to respond quickly, constructively, and effectively to the virus’s threats. Politicians must retain their calm and take measures to minimize disruptions to employees, firms, and sectors, which will cascade across the economy due to interconnection, while not interfering with attempts to combat the pandemic. To that purpose, the CAP proposes five economic policy principles.

Do not do any damage.

The Trump administration has to speak with a single voice and avoid the chaos. Furthermore, the government must cease targeting services that Americans need right now, such as paid leave, public health insurance, SNAP, and other social programs. The most recent budget plan, which has been updated to accommodate the coronavirus epidemic, requests $1.25 billion in additional emergency funding for preparedness and response actions, as well as $1.25 billion in diverted monies from other federal programs. 

More resources, not less, should be invested in public health initiatives.

Epidemics can have massive externalities, altering traditional economic reasoning. Medical treatments should be heavily subsidized and supplied free to customers with minor inconvenience. The Trump government should take aggressive measures to fund early diagnosis, treatment, and vaccination. Reimbursements may be one approach to do this.

In terms of decreasing testing obstacles, the government should clarify that testing would be free (or at least not prohibitively costly) and that individuals should not be afraid of being admitted to the hospital (as undocumented people sometimes do).

The federal government must identify critical medical supplies and ensure that supply can match demand to respond to the epidemic. Facemasks and protective gear for medical staff and saline bags to treat patients must be manufactured and stored with government funding. Furthermore, because many of the active ingredients in generic pharmaceuticals are manufactured worldwide, including in India, China, and the Czech Republic, the federal government must coordinate with domestic drug manufacturers to ensure that the supply of many life-saving drugs is not disrupted.

Financial markets are calm.

COVID-19 has started to impact financial markets, but it’s unclear how much the coronavirus will burden the more extensive financial system in the future. As financial needs grow more volatile and more economically disadvantaged players have more significant problems meeting financial obligations, it will be critical to responding quickly to avoid interruptions in the payment chain and excessive risk-aversion.

On March 3, the Federal Reserve lowered its benchmark interest rate by half a percentage point (.5%), a move largely seen as a response to the coronavirus. Other central banks have either decreased or are contemplating lowering interest rates.

It is crucial to underline that financial authorities should not weaken critical regulatory and supervisory measures at this time. Cutting financial stability requirements for significant banking institutions would jeopardize the financial system’s essential robustness and put the real economy at risk.

Finally, as the coronavirus spreads, international collaboration on economic policy, mainly financial policy, will be preferable. Beggar-thy-neighbor policies and accusations of currency manipulation will be less likely if responses are coordinated. International collaboration and coordination should also aid in the resolution of supply chain difficulties, particularly in critical goods like pharmaceuticals.

Reduce these outbreak families.

It will be critical to mitigating the financial stability and prosperity of families, especially those already vulnerable, due to this pandemic. Many employees lack health insurance, and in 2019, around 27% of private-sector workers lacked access to paid sick days. Given the likelihood that this will not be the last health catastrophe Americans face, the US should implement a paid sick leave program as soon as feasible, as practically every other modern nation has done. 

In the case of a significant health crisis that necessitates lengthy sick leave, the federal government might subsidize companies’ costs of providing paid sick time or assist employees by boosting unemployment insurance benefits. Employees would be able to recuperate from COVID-19 or care for an ill family member without losing their jobs or salary while also benefiting the companies where they work.

Conclusion

With the development of the coronavirus, the US is at risk of a “black swan event”—an extraordinarily uncommon and unexpected occurrence with potentially catastrophic repercussions. As a result, it’s critical to respond quickly and effectively to mitigate the effects of this shock. Now is the best moment to spend money on deficits: Low-interest rates make it cheap and simple for the government to fund itself and limit the effectiveness of any monetary stimulus from the Federal Reserve. 

As a result, it is incumbent on the federal government to offer fiscal stimulus to jumpstart the economy. Put another way, the government needs to spend and invest significantly in critical areas of the economy to boost economic activity, minimize disruption to the population’s health and prosperity, and limit the impact on supply chains and the business sector. 

Possible abrupt halt inactivity, along with increased uncertainty, might reveal fundamental weaknesses in specific families and markets. A decisive and sensible approach based on the five principles stated here will help to reduce economic risks and speed up recovery.