Assignment on the Coronavirus and the US Economy

  Coronavirus has been recognised as an epidemiological threat that causes COVID-19 and other than its harmful effects on health, it has been determined to have disruptive effects on both global and national economy as well. All over the world, the coronavirus has raised significant concerns. For instance, it is expected by the IMF that international GDP or Gross Domestic Product will fall by three percent in 2020. Meanwhile, warnings have been issued by the WTO that the volume of international trade could decrease up to 32 percent. The US will inevitably be influenced by both the domestic and international developments emerging from the virus.

Purpose Statement of Coronavirus and the US Economy

            In this research, effects of the coronavirus on the US economy will be discussed and it will be determined what can be done by the US government for facilitating businesses to recover from it.

Significance of Issue of Coronavirus and the US Economy

            The spread of coronavirus has impacted the global economy significantly and it is adversely influencing national economies, including the US economy. It has been determined that the pandemic is capable of disrupting the international supply of products and good, making it harder for American organisations to fill orders. In fact, it is also capable of waylaying workers and employees in the affected areas, effectively decreasing labour supply and slowing the demand for services and products of the US. Therefore, it would not be wrong to say that the coronavirus is capable of wreaking havoc on the US economy. The only way of preventing is to take effective steps (Karabag, 2020).

Literature Review of Coronavirus and the US Economy

            For assessing the possible effect of the coronavirus on the US economy, it is critical not only to consider the coronavirus’s epidemiological profile but also the ways that governments, businesses, and consumers might respond to it. The coronavirus will directly shape and alter economic losses through financial markets, demand, and supply chains, affecting household consumption, international trade, and business investment. It will do so through the introduction of high uncertainty and in traditional supply-and-demand ways.

            SARS epidemic has been used by economists for putting the spread of coronavirus in context. Actually, the SARS epidemic of 2003 is determined to have eliminated approximately one percent of China’s growth for the year. In addition to it, it cost about 40 billion dollars to the global economy. The epidemic of coronavirus, which is originated in China, seems to differ in a few ways. In 2003, the economy of China seemed to account for 3 percent of the international GDP. However, at the moment, it seems to command 16.3 percent. If the pandemic has similar effects on China, its effects on the international growth will be even worse. Furthermore, growth of China is seemingly weaker than it was in 2003. Its confidence had been weakened by the double effects of trade-war and general deceleration of economy. The economic fallout due to the pandemic could rattle the economy of China further and even decrease international growth, significantly influencing the US economy (Dolbneva, 2020).

            In comparison with SARS, the spread of coronavirus is quicker. China, for its part, responded quickly to the outbreak of coronavirus than it responded to SARS. These measures have seemed to create short-term economic pains on the side of supply and demand. Outside the boundaries of China, the spread of coronavirus has influenced international supply chains significantly as other governments have begun to take serious steps for slowing the spread of virus. It is predicted by the Harvard Business Review that the pandemic is capable of lasting till 2021 and it has already forced thousands of businesses to temporarily shut their manufacturing and assembling plants down in Europe and the US. Again, this will disrupt and cause issues for the international supply chains along with the demands for services and goods in the affected economies. Actually, these disruptions seem to make it tougher for organisations in the US to bring their products to consumers and these organisations will decrease exports from the United States to other countries in the coming months.

            In addition to it, companies and households in the US are deeper in debt now than they were in SARS. For instance, in America, non-financial corporate debt of organisations is approximately 10 trillion dollars. In 2003, this debt was only 4.8 trillion dollars (Atkeson, 2020).

            Disruptions to supply chains are one of the most significant and clearest impacts of the coronavirus. Looking closely at international supply chains, significant disruptions have already been caused, with manufacturers in the US forced to decrease manufacturing and production in their plants. These disruptions have spread further. Economic activity has been reduced because workers are unable to work. This widening of disruptions has caused the US firms to alternate products from different nations for the missing Chinese inputs. Due to these disruptions, US organisations are not able to finish their production and therefore, they cannot bring their products to consumers. It results in reduced growth and activity of economy.

            With the spread of coronavirus, the US economy has also experienced a decrease in demand. It has resulted in significant reduction in revenues for businesses because of overall impact on the economy. Two separate concepts and effects must be considered. First of all, people are purchasing less services and products as they fear being exposed to the coronavirus. For example, in the US, they are less willing to eat outdoors and travel. Due to it, hotels and air travel industry have both experienced significant declines in their sales and revenues. There is also a lessened demand for beverage and food. Secondly, when organisations are forced to shut down, workers are more likely to receive less money than they get, and in some cases, they will receive no salary at all. Consequently, they spend less and it contributes to the already lessened demand. It is important to note that since air travels have been restricted, Chinese tourists are unable to visit the US. Due to it, the US has experienced a loss of 10.3 billion dollars. US exporters are finding it difficult than ever to sell their wares, which again contributes to the loss in number of jobs and growth (Dey & Loewenstein, 2020).

            As much as experts and economist think about taking risks as the driver for an economy, it only seems to work when the risks are known. However, uncertainties and unknown risks are capable of having a more paralyzing impact on the economy. The current domestic economy of the US is already exhibiting high uncertainty. Conflicting regulation policies and political polarisation have led organisations thinking twice before they expand or invest. This uncertainty is capable of affecting market participants, households, and businesses. In addition to it, interest rates in the US have recently decreased to historic lows due to the rising economic uncertainty. The Treasury yield has decreased to 1.50 percent from 1.69 percent. In March, it has become even lower than 1. This dramatic decrease demands that the Congress and White House must do something. The yield rate clearly reflects the instability and uncertainty caused by the pandemic. Meanwhile, prices on bonds seem to reflect the likelihood of a recession. Short-term rates of interest are higher than the long-term ones and it is the opposite of what usually occurs in normal times. Typically, such inversions are an indication that financial markets are worrying about long-term outlooks for growth and economy. Financial markets are seeing an increasing risk of economic recession (Nicola, et al., 2020).

Conclusion of Coronavirus and the US Economy

            The coronavirus pandemic seems to put spotlight on government and policymakers for countering its risks in an effective, constructive, and quick manner for helping businesses in recovering and begin operating to contribute to the growth of economy. It is imperative for them to remain calm and take necessary steps for ensuring that disruptions to individual businesses, workers, and sectors that will affect the economy due to its interconnectedness are minimised while not adversely influencing efforts for dealing with the pandemic.

Recommendations of Coronavirus and the US Economy

There are some recommendations that must be considered for countering the impact of pandemic on the US economy:

·         First of all, it is important for the Trump administration to find one voice and stop contributing to the confusion. Additionally, administration should stop targeting the programmes that are required by Americans such as SNAP, public health insurance, and paid leave. Decisive and clear support should be articulated for containing the outbreak and minimising harms while ensuring investments in emergency preparedness and public health.

·         Regulators and the federal government must monitor financial markets for preparing for credit events and market stress.

·         Instead of further proposing cuts in tax, businesses should be provided with small loans and the opportunity to build their presence virtually. It will help in ensuring that only corporations are not being benefitted from the cuts in tax and provide businesses with a breakthrough that they need to continue existing in the market and contributing to the recovery of economy.

·         Lastly, the US should ensure that its supply chain is not affected adversely by targeting nations in which it has had low involvement in the past years such as Pakistan and India. Trading with these nations will help it in ensuring a sustainable supply chain.

References of Coronavirus and the US Economy

Atkeson, A., 2020. What will be the economic impact of COVID-19 in the US? Rough estimates of disease scenarios. National Bureau of Economic Research.

Dey, M. & Loewenstein, M. A., 2020. How many workers are employed in sectors directly affected by COVID-19 shutdowns, where do they work, and how much do they earn?. Monthly Labor Review.

Dolbneva, D. V., 2020. The Impact of COVID-19 on the World's Economies. Problemi Ekonomiki, 1(43), pp. 20-26.

Karabag, S. F., 2020. An unprecedented global crisis! the global, regional, national, political, economic and commercial impact of the coronavirus pandemic. Journal of Applied Economics and Business Research, 10(1), pp. 1-6.

Nicola, M. et al., 2020. The socio-economic implications of the coronavirus and covid-19 pandemic: A review. International Journal of Surgery.