Image source: Pixabay

Trade wars are killing Pandemic COVID-19 cooperation. If there is a resurgence of the virus nationwide similar to what is currently being seen in Florida, the United States will have serious problems.

Wall Street is betting all on a vaccine. Maybe it will work. Maybe it won't change behavior as much as we think it should change. Will there even be enough vaccine made available to change the direction of the virus in the USA?  The mask situation alone is problematic.

I currently have a medical condition that requires the use of procedural face masks. Currently, those masks are in short supply. The situation is better than it was in April but it is not fixed. Any additional spread of the pandemic will simply make things worse. The company I deal with is getting masks directly from China.

Unlike the first round, where northern states like New Jersey and New York were hit, now the southern states including Arizona, Texas, Florida, and California are being hit with the virus and hiring has finally increased for temporary COVID nurses. The pay is high because these nurses are putting their lives on the line.

I know this because my relative recruits nurses and she reports that this new demand started about 4 to 5 weeks ago out west. She says most positions get filled, but there are jobs paying $5,000 per week that are going unfilled. Some jobs require monitoring of a group of patients for the virus. Some require emergency room nursing, the most dangerous job of all. 

Trade War Danger

Sweeping away tariff restrictions would cause a small loss to governments imposing the tariffs. But we see from Global Trade Alert PDF:

In addition to unilateral tariff elimination, calculations are presented here of the total public revenue loss if taxes on imported medical supplies and soap were cancelled worldwide and in regional groupings, such as APEC. Worldwide cancellation would involve a loss to finance ministries of between $4.5bn and $9bn per annum, which is a tiny percentage of the total value of the monetary and fiscal stimuli announced during the past 10 days. It would cost less than $2bn to compensate developing countries outside the G-20 for the revenue losses resulting from cancelling their tariffs on medical supplies and soap. 

And this can only hurt the USA, as Asia throws up export curbs for medical products produced there. China is relaxing some, which directly helps me, but export curbs are deadly if a resurgence of COVID comes in the fall or winter. Donald Trump has made the USA a sitting duck by his failure to improve relations and by his tariff wars:

As of 21 March 2020, a total of 54 governments have implemented some type of export curb on medical supplies and medicines associated with the COVID-19 pandemic. Bulgaria, France, India, Indonesia, Saudi Arabia, the Republic of Korea, Taiwan, Thailand, Turkey and the United Kingdom have implemented multiple export curbs, often widening the scope or hardening the provisions of export limits. Fairness dictates noting that China, Taiwan, and Germany have relaxed their export curbs to a certain degree. Still, the direction of travel is clear—governments are putting up obstacles to foreign buyers of vital medical supplies.

While Marco Rubio blamed China for failure to export masks to the United States, it was Trump tariffs that limited the supply of masks in the United States:

China did have a greater need for its domestically manufactured masks in February as the virus ravaged the country, but Rubio greatly overstates the situation. Imports of masks from China to the U.S. did drop in January and February, but imports of other products dropped even more. Imports to the U.S. did occur in April through the federal government’s Project Air Bridge, and a few states arranged their own imports with the help of other entities.

It is clear that the Republican Party is wreaking havoc when it comes to world trade. This impacts all supplies, and medical supplies are the most vulnerable even now. We have an administration that is struggling. We have Senators like Rubio who want to punish China while getting mad when China does not provide what we need. Don't Senators have better things to do, like overseeing the big guy occupying the White House?

While we should ease tariffs on China, the Eurozone is hurting even more. As we see from the following Trading Economics chart, US exports to the Eurozone have fallen off a cliff:

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United States Exports to Eurozone

The Eurozone will not be able to pull the United States out of this Pandemic Recession. China could, but American sales are suffering there with exports as well as we see from Trading Economics:

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United States Exports to China

Notice that the above chart shows trade with China increased through 2018 on Trump's watch. But then, the first tariffs were imposed by Trump on August 1, 2019. It has been downhill from there, although China appears to be attempting to buy even in the midst of the financial crisis and in the midst of the relentless badmouthing of China by Trump's attack dog Pompeo. Yes, things are worse between the USA and Europe but world trade is suffering!

Tariffs are bad all the way around. They not only impact the dollar amount of the tariffs, but shipping, dockworkers, truckers, and others are impacted by loss of business. That is on the import side. On the export side, tech companies will suffer as well. Their ceiling was unlimited as long as they had China as a customer, To the degree that they lose China as a customer, their ceiling for growth lowers greatly.

Yet Donald Trump has hit the NBA hard for receiving revenue for NBA popularity in China. There are many fans in China. And Trump essentially has now made it clear that any company that profits from China is entangled with China. Do investors feel alright with the idea that Apple (AAPL) or Starbucks (SBUX) or McDonald's (MCD) are entangled with China? This idea is insane and Trump has gone too far. 

Purchasing Power Parity

As I have said before, China has purchasing power parity that allows its citizens to buy local and the nation is stronger than we measure by traditional means. The CIA website keeps track of purchasing power parity which shows it is the wealthiest nation in the world in total GDP:

If the United States minimizes the importance of China both to our tech giants and to world economic prosperity, we run the risk of hurting our own financial growth permanently.

Other China Advantages

The Chinese people are industrious, and with almost twice as many internet cell users as we have people, the nation has room to grow.

The article from Wharton School of Business written by David Erickson reflects what has been my view, pre-pandemic. If this view is valid, China will bounce back faster than the United States, economically.

The US seems to want to ban Chinese stocks, That probably won't make much difference, because what you may never hear on US TV is that China has the largest IPO market in the world. From Erickson:

Now, markets in Hong Kong, Shanghai and Shenzhen collectively represent the largest IPO market in the world as can be seen in the chart below from KPMG’s “Mainland China and HK 2018 Mid-Year Review: IPOs and Other Market Trends.”

China's epPay system is far advanced. While I fear a cashless society, for many reasons, the Chinese seem to love ePay:

One of what may be China’s best economic secrets is that it is home to not one, but two of the most powerful e-payment platforms globally. Ant Financial’s Alipay and Tencent’s WePay are estimated to each have more than 500 million active users. Trying to provide comparison to the U.S. market is difficult, but it is quite clear that the e-payment market in the U.S. is just a fraction of China’s.

Summary

The trade war is dreadful even without the hoarding of medical supplies. Trade barriers make things much worse. We still have mask shortages. If things get worse with the pandemic, Americans could be at risk. This is totally unnecessary. Global GDP is falling by 4.9 percent as estimated by the IMF. The recovery may be very slow. says the IMF.

The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4 percent. Overall, this would leave 2021 GDP some 6½ percentage points lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s.