Coronavirus And Trump's Clever Inadequacy

Donald Trump wanted trade wars from way back. He said China was raping the USA economically. What he failed to understand was the scale of China's business model.

It has been said by Steven Roach that there are 300 million migrant workers in China. That almost equals the entire population of the United States. Many have problems getting to work. The factories have to produce goods to pay back loans. China is the largest economy in the world according to purchasing power parity.

It would be easier for the Chinese to buy their own products than for Americans to afford American made products. We had the wealthy Chinese developing a taste for American products in ever greater quantities until Trump started the trade war.

Trump and Coronavirus

Donald Trump introduced a serious trade war with China not seeing the Coronavirus Covid-19 on the horizon. He thought he was clever, but now the US government says the trade war hurt the US economy and it slowed the Chinese economy. Now Trump and the world face the virus from a weakened position to begin with.

Because Trump could not grasp the scale of the Chinese economy (they make things and we sell each other insurance), he cannot grasp the damage a credit crisis in China could have on the world. He panicked recently, saying that the US was open for business to sell GE motors to China's aviation system. Trump knows tax revenue is down. His tax cuts have made revenue collection inadequate. He also cannot afford a China collapse and has said as much.

As I say, Trump wanted world cooperation with China as well to slow the process of the virus, while Peter Navarro and hard-liners want only a break with China. This would be a disaster to our economy on top of the potential disaster facing us already.

But Trump has major blind spots. Sanctuary cities encourage illegal aliens to go to the police and to the hospital. The virus could spread more rapidly in none sanctuary cities. Again, being politically clever compromises safety.

How Dangerous Is Coronavirus?

The Coronavirus appears to be far more infectious than is the flu. It is thought to be 1000 times more contagious than was Sars. WHO started out doing damage control, but now is warning of a pandemic. It gives daily reports. Germany says it cannot track the carriers or exposed potential victims. 20 untracked people could cause a pandemic.

Only three states in the USA have kits that would adequately track those who have symptoms, and it appears that it can be spread by those with no symptoms. Trump says only wealthy people may be able to afford the vaccine which he is not funding with enough money anyway according to Democrats. 

Donald Trump appears confused. He is in damage control but then says schools should plan for a pandemic. Even the fear of pandemic in the USA will crash an over-leveraged stock market. All this leverage could cost speculators a lot of grief, even to the point of endangering the financial system. It was one thing to restore confidence in the Great Depression. It is virtually impossible to restore confidence in a pandemic. 

The above comments reflect a worst-case scenario that may not happen. Perhaps the cases will be milder in the United States and will pass. However, we have to consider people's perceptions as well. What will their movements be out and about if the pandemic strikes their towns and plans. 

Look at Boeing as an example. This company was wounded with the Max plane that has multiple issues preventing it from flying. But now companies could cancel or delay orders if people fear to board any airline to anywhere because of Covid-19.

Look at Europe. The nations are already a sliver above recession. The banks are a mess and as Jeffrey P. Snider says, things already are not fine.

Coronavirus is potentially dangerous to humans and to the travel industry. We can hope it will pass gently but experts have warned that more than 1/2 of the entire US population could become infected with millions of deaths. One researcher predicted 40 to 70 percent of our population will be infected. The risk is greater for older people, with an 8 percent death rate for those between 70 and 79, and a 14+ percent death rate for those over 80. That includes much of the investor class.

I visited the Grand Canyon a year and a half ago. By far the most visitors were Chinese when I was there. This is true at various shopping venues as well. Wealthier Chinese were addicted to US products. Now many can't come, groups are banned, and many Chinese may not remain loyal in the future. Yellowstone Park is bracing for at least a 30 percent drop in visitors, Chinese visitors.

When a president plays fast and loose with supply and demand, with debt, with brand loyalty, he is only shooting his own citizens in their pocketbooks.

US Banks and China

One critical area of financial weakness could be American banks. While China is a creditor nation to the United State, owning a large portion of our treasury bonds, it as a nation borrows from US banks. US banks may be very vulnerable if their loans to China go bad.

China borrows from the world bank at about 1.3 billion dollars per year. It has borrowed billions in order to take advantage of world bank expertise. Steve Mnuchin argued against the loans, saying China loaned billions to poor nations. Oh, bad China. No, Mnuchin looks like Scrooge. But the world bank could be at risk in case of a default by China in this crisis period.

And in America, borrowers are using up for 55 percent of their income to by a house as they use alternate lenders. They may be a few paychecks from default. Can we dare imagine if these folks are walled off from work?

Banks appear to be quite vulnerable if the virus hits the USA hard. We hope for a better outlook, but there is no guarantee.

What does the Future Hold

We all hope that the virus passes without all the worst-case scenarios I have listed above. But it may require a militancy that we are seeing in China in order to confront the virus effectively. We may see stocks crumble, and small investors close to retirement may want to at least take out their initial investments. Predicting where stocks will go at this time is impossible.

I am already seeing masks being worn at the grocery stores. Is Trump being shielded from the stark reality already building? Is he in way over his head? Only time will tell.