American policy on Taiwan

Following President Richard Nixon’s famous visit to China in 1979 the so called One-China policy was first stated in the Shanghai Communiqué of 1972: “the United States acknowledges that Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is a part of China. The United States does not challenge that position.” “One China policy – U.S. policy”  However, in the Taiwan Relations Act (April 10, 1979), the U.S. stressed its opposition to any effort by the People’s Republic of China (PRC) to change conditions in Taiwan by force. Just how that opposition might be expressed has remained ambiguous ever since.

The United States has no treaty obligation to help defend the Republic of China (ROC–Taiwan) against a military attack by the PRC. It is doubtful that the U.S., located thousands of miles from Taiwan, could win an encounter with the PRC only 100 miles away. In recent simulated war games with China the U.S. has lost. “As the US and China continue to posture the key will be Taiwan” A military intervention by the U.S. would create a significant risk of escalation into nuclear war. 

China experts such as Chas Freeman have argued that since Washington long ago agreed that ‘there is only one China and that Taiwan is part of it,’ any mainland invasion would simply be a civil war in which America has no right to intervene.” Moreover, risking nuclear war to defend Taiwan would not be in America’s or anyone else’s interest.

Until quite recently, Taiwan’s efforts to build its capacity to defend itself from a mainland attack rested heavily on the presumption that its defense would come from the U.S. “Taiwan’s military has closely mirrored its U.S. counterpart in miniature for years…. The problem with copying the American approach to warfare is that the U.S. military’s doctrine is to project power over great distances and to maximize mobility and networks to take the fight to the enemy with overwhelming superiority. Taiwan, on the other hand, needs the opposite: short-range and defensive systems that can survive an initial bombardment from a larger adversary and that are suitable for deployment close to home in defense of the island should it come under blockade or attack.” “Winning the fight Taiwan cannot afford to lose”

Taiwan’s almost $17 billion-dollar annual defense expenditures keep American weapon’s companies happy but didn’t contribute seriously to Taiwan’s defense. “Taiwanese military analysts have criticized the island for spending too little on defense, and for spending money on eye-catching purchases such as F-16 fighter jets rather than less-flashy weapons systems that would better enable Taiwan to wage asymmetric warfare against the PLA’s superior strength.” “Concerns about Taiwan put focus on islands defensive weakness” This has begun to change in the last few years toward weapons more appropriate to defending Taiwan against a ground assault.

While it is in America’s interest for Taiwan, as well as every other country in the world, to be peaceful, democratic, and prosperous, that interest is not sufficient to risk going to war–not even close. We should hope that the relations between Taiwan and the Peoples Republic of China remain peaceful and consensual whatever form they ultimately take. But should China attempt to “change conditions in Taiwan by force,” how should the U.S. express its opposition.  It is a very sad commentary on the state of American international policy that so many American policy makers routinely conceive of expressing American opposition militarily. We have done so too often to the detriment of American interests.

On the other hand, a Chinese military attack on Taiwan would be a violation of its commitment not “to change conditions in Taiwan by force.” In such an event the U.S. should oppose such actions vigorously with coordinated diplomatic measures. A U.S. China war would certainly stop all trade with China. This would badly hurt both of us. But even without war, if a total trade embargo by the U.S. were joined by the EU, Australia, Japan, Korea, Canada, UK, and most other UN members it would be devastating to China. China could be expelled from all the international organizations it has so proudly joined in recent years. Its global ambitions would be destroyed. Such prospects would surely be as powerful a deterrent to China’s invasion of Taiwan as would the prospect of U.S. military intervention in defense of Taiwan.

American interests are better served by being the best that we can be, i.e., by strengthening our own economy and political system (which is in a dangerous mess at the moment). It would also be helpful if Ted Cruz would stop blocking President Biden’s State Department appointments so that we can strengthening our use of diplomacy and return our military from its foreign adventures to the defense of our homeland.

See Jon Schwarz’s interesting review:  WE’VE ALL PRETENDED ABOUT TAIWAN FOR 72 YEARS. IT MAY NOT WORK ANY LONGER   “Taiwan, China, nuclear weapons”

Chinese and U.S. Models

Many aspects of our respective societies and governments follow different rules and approaches to organizing our communities. We presumably prefer (most of) our choices over theirs and vice versa. In explaining why we prefer ours, we might freely criticize theirs. But we generally have no right to demand that they abandon their approach and adopt ours.

Consider China’s Social Credit System.  In the U.S. we are “well accustomed to credit checks: data brokers such as Experian trace the timely manner in which we pay our debts, giving us a score that’s used by lenders and mortgage providers. We also have social-style scores, and anyone who has shopped online with eBay has a rating on shipping times and communication, while Uber drivers and passengers both rate each other; if your score falls too far, you’re out of luck.

“China’s social credit system expands that idea to all aspects of life, judging citizens’ behaviour and trustworthiness. Caught jaywalking, don’t pay a court bill, play your music too loud on the train — you could lose certain rights, such as booking a flight or train ticket.”  “China social credit system explained”

A good Social Credit score will ease access to loans and other good things. Compared to our approach to collecting information on our likely credit worthiness, the more comprehensive and centrally organized rating is more efficient and comprehensive. But we are very aware of the Chinese Communist Party’s sensitivity to criticism and its potential (if not certainty) for abusing such extensive access to information on our personal behavior. So, we would never allow such a system.

But what about the U.S.’s strong support (and push) for AML/CFT (Anti-Money Laundering and Combating the Financing of Terrorism) laws and procedures?  How do we (how can we) justify that? The U.S. requires that all financial firms collect information about their customers (KYC–Know Your Customer) that facilitates the government’s tracing payments of potentially illegally gained money and it has forced this requirement on all countries using U.S. dollars. The cost of these requirements is enormous. But why follow allegedly illegally gained money when the government can’t prove that it was illegally gained in the first place? If it could, the government should attack the illegal activity at its source. Thus, it claims, but cannot prove, that the money was illegally earned. Not only are AML requirements very expensive but the benefits (identifying criminals) are negligible and morally indefensible. “Operation Choke Point”

The issue of whether to require a so-called vaccination passport to document that the bearer has been vaccinated in order to enter facilities that require such proof, provides another example of a clash between efficiency and convenience and privacy. The pros and cons of such documentation are currently being debated in the U.S.  “vaccine passports”

My point is that each country has its own models for organizing and sharing information and for enforcing its laws.  We have every right, and should, carefully evaluate our own practices. What China chooses to do, is China’s business. Fortunately, we live here.

China and the United States

“Biden describes the China challenge as a global, ideological struggle between democracies and autocracies…. Any event from the pandemic to the Olympics will occasion commentary, particularly in the United States, of who “won,” China or America, and what it means for the epic struggle for global supremacy.” “There is no unified front against China”

I am not sure what it is that we want to win. We don’t seem to mind selling planes and bombs to other autocracies (Saudi Arabia, Qatar, etc.). Anything to keep the defense industry’s profits flowing short of yet another war seems a (relatively) good deal. And why might “global supremacy” matter?

Winning things sounds to me like rooting for our own basketball team and cheering when it wins the championship. How do we go about striving to have the best basketball team? First, we recruit the best basketball players we can find and hire the best coach to train them. Everyone must play by the agreed rules, and we win by playing the best game. In short, our efforts go into being the best team possible, not into poisoning the drinking water of the other teams.

But sporting contests are zero sum. One side wins and the other losses. Global cooperation and trade is win–win. The goods we produce and sell (for example) to China, with which to pay for the goods we buy from China make us and China both richer. The citizens of both countries benefit from this exchange. Win–win. Sharing information on the source, nature, and potential cure of a virus (which knows no borders) benefits all of us. Win–win.

The world’s output is maximized when our productive assets (labor and capital) are allocated to their most productive uses globally. That requires that market prices reflect the true productivity and value of each activity. Thus, the world as a whole benefits from rules governing government interferences in market prices and allocations. The World Trade Organization is the forum for agreeing on these rules of fair trade and enforcing them. “Econ 101- Trade in very simple terms”

The airplanes built by Boeing and Airbus benefit from government support of one sort or another. For years they have fought one another over whether this support conformed to fair trade rules. A settlement has finally been reached. “Boeing – Airbus settlement”

Trade restriction in the name of national security, while potentially legitimate, can easily cross the line into wealth reducing protectionism. Does the use of Huawei 5G equipment really threaten U.S. national security or U.S. business interests (protectionism). Some of these cases are hard to call but we must look carefully at narrow business interests in protecting their markets to the detriment of the rest of us. “Huawei ban could crush US aid efforts”

Global supremacy suggests that we would set these rules. To be successful the rules of international trade must be very broadly followed. Thus, their formulation must be a collective undertaking. It is fine for the U.S. to exert influence in setting these rules, but unfortunately, we have a poor record of even following them. We have caused the demise of the WTO dispute resolution body. We have strangely and counterproductively withdrawn from the Trans-Pacific Partnership (TPP), which was then replaced by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). These set high standards for more open trade that China will hopefully have to meet to join. The self-image of supremacy has corrupted U.S. behavior. Former President Trump’s protectionist tariffs on trade with China, EU, Canada, etc., which President Biden has so far failed to remove, have further reduced U.S. and world income. “Trade protection and corruption”

So, what should our policy be toward China? China has no intention or interest in attacking the United States. They care about their own economies and their own neighborhoods. We should keep our nose and military home to look after our own neighborhood. We should work with China (and Russia and others) to formulate win-win rules for international interactions and behavior. We should apply the mechanisms of the WTO and other international bodies, and diplomacy more generally, to hold China (and others) to the agreed rules. But we must abide by them as well. The rule of law is not just for others.

We should fix the problems in our own economy. We should work to make our domestic rules of commerce fair and efficient so that our economy will be the best in the world. We should work with other countries, including China, to maximize the productivity of their resources because we and everyone else will benefit (win-win).

The United States was founded on principles that have served us well providing a model that the rest of the world would do well to follow. The idea that we should (or can) impose our principles on others rather than provide an example like “a shining city on a hill,” is a violation of those very principles. We have repeatedly failed to uphold those principles, but we keep trying. We must continue trying and must try harder.

National Defense

American military strength (an important aspect of our national security) depends on the size, training, and equipment (weapons) of our military, which is very much dependent on the size and efficiency of our economy, which pays for it.  Devoting more of our productive capacity to the military reduces our economic capacity. Getting the balance right between military and nonmilitary uses of our resources is very important.  Knowing what military capacity we need to insure our defense requires assessing the sources of threats to our national security and what motivates their deployment.

The cold war was a confrontation with international communism, most heavily concentrated in the Soviet Union. This was an ideological enemy of free market, capitalist countries, whose goal was to spread its ideology to the entire world. There is no such ideological enemy today. The Chinese government wants to be strong and prosperous and doesn’t care whether anyone else follows their model or not. They do want the rules for global trade and interactions to permit their own domestic model. We need to engage China fairly in establishing international rules that serve everone.

Historically wars were generally about territory and political control, usually about moving boarders a bit this way or that.  The Mogul, Roman, Persian, British, Ottoman and other empires existed largely to extract economic gain from the territories they ruled, something more peacefully enjoyed today via free (or freer) trade.  The mere threat of war and the creation and maintenance of potential enemies is also a useful device for rallying countries around their leaders and for keeping the money flowing to their “defense” industries–think of Mr. Putin, Xi Jinping and the U.S. military/industrial complex.

American defense today requires military strength sufficient to deter any country from successfully attacking the United States. It does not require the 800 military bases that we maintain around the world.  It did not require and was not enhanced by our many wars that followed the infamous and very damaging Viet Nam war (Lebanon 1982-4, Grenada 1983, Panama 1989-90, Gulf War 1990-91, Somali 1992-5, Bosnia 1992-5, Haiti 1994-5, Kosovo 1998-9, Afghanistan 2001-date, Iraq 2003-11, 2014-date, Somali 2007-21, Libya 2011, 2015-20, Syria 2014-date, War on Terror in various places). War with China would be quite a different matter. “The delusions of high tech warfare”

Fareed Zakaria unloaded on our war industry last month: “Defense Secretary Lloyd Austin outlined his key concern. ‘China is our pacing threat,’ he said. He explained that for the past 20 years, the United States had been focused on the Middle East while China had been modernizing its military. ‘We still maintain the edge,’ he noted, ‘and we’re going to increase the edge going forward.’ Welcome to the new age of bloated Pentagon budgets, all to be justified by the great Chinese threat.

“What Austin calls America’s ‘edge’ over China is more like a chasm. The United States has about 20 times the number of nuclear warheads as China. It has twice the tonnage of warships at sea, including 11 nuclear-powered aircraft carriers compared with China’s two carriers (which are much less advanced). Washington has more than 2,000 modern fighter jets compared with Beijing’s roughly 600, according to national security analyst Sebastien Roblin. And the United States deploys this power using a vast network of some 800 overseas bases. China has three. China spends around $250 billion on its military, a third as much as the United States.”  “The Pentagon is using China as an excuse for huge new budgets”  As noted above, over-investing in the military results in a smaller economy overall.

The latest debate is whether we should make our commitment to go to war with China to defend the independence of Taiwan explicit or leave it implied and ambiguous. In 1979 the U.S. recognized the People’s Republic of China as the sole legal Government of China and acknowledged that Taiwan was part of China (slightly fuzzy diplomatic language). So would American national security be enhanced by an explicit credible commitment to go to war with China, if necessary, to preserve the independence of Taiwan? China is a nuclear power. Going to war with China (World War III if we could get anyone else to join us) would inflect enormous damage on the U.S. whether it became nuclear or not, even if we won. In my opinion it would be simply insane to take such risks.

Would the U.S. deter China by being tough enough?  As Doug Bandow put it: “America’s antagonists saw something very different than weakness…. Stupidity and arrogance. Poor judgment. Refusal to admit mistakes. An almost demented willingness to sacrifice America’s future in a desperate attempt to redeem the nation’s tragic past. A better way not to show weakness would be to stop doing ‘stupid shit,’ as Obama suggested.

“China’s Xi Jinping and his colleagues in Zhongnanhai likely have a far more objective and practical take on U.S. policy: Endless wars by Washington are good for Beijing. The Chinese would love to see the US pour trillions more dollars and thousands more lives into new conflicts. Invade Iran? Please! Maybe occupy Syria too? Lebanon also needs fixing. Don’t forget the need to redeem Afghanistan. Then there is the problem of Russia in Ukraine, Syria, and elsewhere: go for it!”  https://original.antiwar.com/doug-bandow/2021/03/23/the-failure-of-huff-and-puff-foreign-policy/

But China (and Russia in Ukraine) has been behaving badly–claiming this little island in the China Sea and that one as its own, not to mention the ever-present risk of invading Taiwan. Even if the forced takeover of Taiwan by the PRC would not threaten our national defense, shouldn’t we care? Shouldn’t we care about the abhorrent genocide by the Chinese government against its Uighur Muslim minority in its western province of Xinjiang? Of course, we should, but we should reject the presumption of our neocon friends and the military/industrial complex we keep fat and rich that these and other interests can only be addressed militarily. See my experiences in Iraq and Afghanistan: “My Travels to Baghdad”

The creation of the United Nations and Bretton Woods institutions and other international cooperative agreements and institutions after World War II were meant to provide dispute resolution mechanisms other than wars. President Biden is committed to rebuilding these neglected institutions and strengthening and reenergizing our diplomatic institutions and initiatives. We can confront China more effectively and more realistically together with most of the rest of the world using the tools of diplomacy rather than of war. If the people of Taiwan chose to integrate their governance more fully with that of the PRC, that is their choice and their business. But if China invades Taiwan or otherwise forces such an integration, China should know the economic and political price they would pay. In my opinion, such a declaration would be far more effective in deterring such behavior by China than a fuzzy uncertain threat of war. It is encouraging that Congress seems on the verge of reclaiming its War Powers provided by the Constitution.

It is worth remembering the words of Dr. Martin Luther King, Jr. against our war in Vietnam delivered April 4, 1967. https://kingandbreakingsilence.org/

Hate Crimes

“The shooting deaths of eight people at Asian-run spas in Georgia this week triggered a vigorous national debate Thursday over whether the mass killing amounted to a hate crime.” “Georgia hate crime law-Atlanta shooting”  These deaths (and recent attacks on Asians more generally) raise several issues that I would like to explore. 1. What is the point of hate crime laws?  The poor ladies killed in this attack could care less what motivated Robert Aaron Long, the 21 year old shooter. 2. Whose fault is it? Let’s start with the shooter (and other attackers), please. 3. What should we do about it (beyond locking the shooter, and other attackers, up)?

What is the point of hate crime laws?

“Georgia State Rep. Chuck Efstration, a Republican who helped shepherd [Georgia’s Hate Crime] bill into law, said it was intended to allow for especially stiff penalties for crimes in which “the perpetrator’s prejudices and biases are attacks not only on the victims but on all of society.  Thank goodness law enforcement will have the ability to charge this as a hate crime if the facts support that,”   [op cit]

Georgia State University law professor Jessica Gabel Cino noted that: “The majority of the victims are women, and they are Asian. Those are two protected statuses.” And what if they hadn’t been?

Traditional laws do differentiate between first, second, and third degree murders, but if you plan to and succeed in killing someone, it didn’t traditionally matter whether you loved or hated the victim. I can understand why such information might be useful in exploring approaches to mitigating the risk of such future murders, but I don’t see its relevant to the guilt and punishment of the murderer. I do not support capital punishment, but Mr. Long should surely be put away for the rest of his pathetic life whatever motivated his killing spree.

According to Mr. Long, “he was on a mission… to stem his addiction to sex. The spas were ‘a temptation for him that he wanted to eliminate.’”  “What happened-Atlanta shooting”

In determining the length of a sentence, courts do pay some attention to the motive for a crime as well as the crime itself but a special category of “hate crimes” has always seemed troubling and unnecessary to me.

Whose fault is it?

In a free society of responsible citizens, we must never forget that in the first instance the fault for a crime rests with the criminal. But it is fair to ask what motivated the criminal. While Mr. Long’s horrible crimes do not appear to be motived by the hatred of Asian’s, there has definitely been an increase in verbal and physical attacks on Asians over the past year. Much of the press has been quite eager to point to the hate filled and divisive statements against China by former President Trump. While he is certainly guilty of poisoning public discourse on China, immigration, Muslims and related topics, it is an odd place to look first.

Animosity toward Asians, and Chinese in particular, arises in the first instance from the behavior of China (shorthand for the government of China — synonymous with the Communist Party of China). In fact, unfavorable attitudes toward China have skyrocketed around the globe over the last three to four years. “For our enemies we have shotguns explaining Chinas new assertiveness” Public attitudes toward China are lower in Australia and the U.K., for example, than in the U.S. and fell sharply well before the Covid-19 pandemic.  “China global reputation coronavirus”  Attitudes toward China began to deteriorate in the face of Chinese assertiveness in the South China Sea, violations of the one country, two systems agreement for Hong Kong, theft of intellectual property from the West, and treatment of the Uighurs in the Xinjiang region, to name a few. China’s suppression of information on the virus producing covid-19 pales in comparison to its bad behavior in other areas.

What should we do about it?

The world that objects to China’s behavior needs to stand together in pointing it out. Former President Trump’s stand-alone, bilateral approach was a failure. But it is very important when the U.S. and other governments criticize China to clearly differentiate the government of China from the Chinese people, whether citizens of China or the U.S. or elsewhere. It is the Chinese government–the Communist Party of China–that is misbehaving.

The distinction between a government and its people is important more generally. For example, those who criticize the misbehavior of the Israeli government toward the Palestinians in the West Bank and Gaza, are sometimes mistakenly accused of anti-Semitism–i.e., of being against the Jewish people. It is likely that many are reluctant to criticize the Israeli government for fear of being accused of anti-Semitism. As the Biden administration joins with other countries to criticize the misbehavior of the Chinese government, it must, and it is, clearly distinguishing the Chinese government from the Chinese people. And we, each one of us, must speak out at the sight of rude or inappropriate behavior toward Asians, or anyone else. ALL LIVES MATTER.

The Rule of Law: China and the U.S.

The rule of law has been an essential and critical foundation of successful free market economies. It provides the certainty of property rights and contracts needed for entrepreneurs to risk their capital in business undertakings. But as our business and other activities cross borders, whose laws apply?

“Among the earliest examples of legal codes concerning maritime affairs is the Byzantine Lex Rhodia, promulgated between 600 and 800 C.E. to govern trade and navigation in the Mediterranean.” https://en.wikipedia.org/wiki/Law_of_the_sea  Leaping forward, international air travel, satellite communications, spectrum allocation for radio, TV, internet, and other telephonic transmission would be impossible without firm agreements among countries–the international rule of law.

Laws facilitate commerce–buying and selling–by establishing rules for doing so (e.g. contract enforcement rules) that are stable and applicable to all. They lower the costs and reduce the risks of trading. The United States Constitution recognizes the importance of this in the commerce clause of Article I Section 8, which is used to prevent individual states from taxing or otherwise interfering with interstate commerce. Achieving the same law-based freedom to trade across national borders is more difficult, requiring the negotiation of agreements and treaties that establish common rules between sovereign nations.

The World Trade Organization (WTO) develops and enforces the rule of law in the area of cross border trade. The difficulty of achieving global agreement on the rules of various aspects of trade is reflected in the fact that no new agreements have been reached since the establishment of the WTO (taking over the General Agreement of Trade and Tariffs) on January 1, 1995. “The WTO agreements cover goods, services and intellectual property. They spell out the principles of liberalization, and the permitted exceptions. They include individual countries’ commitments to lower customs tariffs and other trade barriers, and to open and keep open services markets. They set procedures for settling disputes.” the WTO – what is it?

China was admitted to the WTO as a developing country on December 11, 2001. Chinese officials immediately expressed the desire to understand and conform to the international rules required by the WTO and requested technical assistant from the IMF for doing so. In July of 2002, the IMF sent me to Beijing to review their needs with them.  They were particularly keen to have an American banking supervisor to advise them. I had a perfect candidate who was just finishing a two-year posting to Hong Kong. Everyone I spoke to in Beijing, as well as my Chinese colleagues at the IMF, stated that virtually all Chinese officials agreed on where China wanted to go–full liberalization according to WTO rules. They only differed with regard to how fast they thought they should move to get there.

Our condition was that our resident banking supervision advisor had to have his office located with the other Chinese banking supervisors and that he would have an open door. This was enthusiastically accepted by the Deputy Governor who apparently had not informed the Governor of these details. Unfortunately, when the Governor was presented the contract of his signature, he killed the arrangement. I was, however, able to enjoy wonderful tours of the Great Wall, the Forbidden City, and dine on the best Peking Duck I have ever had.  

An economically rising China is lifting millions of people out of poverty. We rightly welcome its newly productive economy contributing to increasing world output and living standards. The challenge is to square China’s authoritarian political regime with an international free market trading system. The vehicle has been the WTO and other international rule setting bodies that exist to harmonize diverse economies in the direction of freer and more open trade. The rules were being set by the dominant, largely free market economies that China wanted to join.

Beyond an American led WTO itself, the multilateral trade agreement that established the highest standards yet for tariff reduction and the incorporation of more modern trade issues such as non-trade barriers, services, protection of intellectual property, minimum labor standards, and dispute resolution (the rule of law cannot meaningfully exist without credible dispute resolution procedures) was the Trans-Pacific Partnership (TPP) negotiated between 2006 and 2015. The TPP agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States was announced on October 5, 2015.

Three days later, on October 8, I spoke in New York City at a seminar hosted by the Chinese Chamber of Commerce of New York on the internationalization of China’s currency, the renminbi. All of the talk by the Chinese attending was about the TPP. Why was China excluded? Could they join? My reply was that China would be very welcomed to join when they were able to meet the treaty’s conditions. TPP was another powerful magnet pulling China into the liberal international trading order.  

A recent report from the Peterson Institute of International Economics (June 23, 2020) stated that: “The Trans-Pacific Partnership (TPP) was designed in 2016 to be almost China-proof, with stringent obligations requiring transparency and trade liberalization. As former US Trade Representative Michael Froman put it, Chinese participation would be welcomed only when China could meet TPP’s terms, which it was far from doing. The United States was not keeping China out; China was just not ready to come in.” “China and Trans Pacific Partnership-in or out”

Broadly speaking, the aim of the WTO is to increasingly move its member countries toward the freest trade possible with fair competition (a level playing field), thus promoting a more productive allocation of economic resources and lifting global incomes.  The organization is not without its problems. But rather than working to strengthen the WTO, President Trump turned to negotiating bilateral trade agreements and raising rather than lowering import tariffs. Clearly bilateral agreements are easier to conclude than are global or broad multilateral agreements. Trump focused on China and its large bilateral trade surplus with the U.S. out of the mistaken belief that its surplus (our deficit) was harmful to the U.S. and that reducing it would increase American jobs. “Who pays Uncle Sam’s deficits”

In one of his most short-sighted actions from a sadly long list, President Trump withdrew the U.S. from the TPP on January 23, 2017. In addition to tweaking a few existing trade agreements, such as the North American Free Trade Agreement (NAFTA) by incorporated many of the newer provisions of the TPP and the United States-Japan Trade Agreement and the United States-Japan Digital Trade Agreement, and imposing protective tariffs on solar panels, washing machines, steel and aluminum imports in the name of national security and “America First,” the Trump administration has focused its trade war bilaterally on China (with occasional pot shots at our friends in Europe and elsewhere).  “Trade Office fact-sheets and-annual-report”   A Brookings Institution study assessed the result of all of this for the American economy and workers as follows: “American firms and consumers paid the vast majority of the cost of Trump’s tariffs. While tariffs benefited some workers in import-competing industries, they hurt workers in sectors that rely on imported inputs and those in exporting industries facing retaliation from trade partners. Trump’s tariffs did not help the U.S. negotiate better trade agreements or significantly improve national security.”  “Did-Trump’s-tariffs-benefit-American-workers-and-national-security”

The remaining eleven countries that had signed the TPP agreed in January 2018 on a revised treaty they renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership” (CPTPP).  CPTPP is substantially the same as TPP, but omits 20 provisions that had been of particular interest to the U.S. These provisions can be relatively easily restored should the U.S. choose to rejoin. “Trade and Globalization”

With the increasing power of Xi Jinping, China’s President and the General Secretary/Chairman of the Central Committee of the Chinese Communist Party (now for life), China has played an increasingly active role in the IMF, WB, WTO and other international bodies. In addition, it has launched several regional organizations that it leads (the Asian Infrastructure Investment Bank, the New Development Bank–BRICS, and the Belt and Road Initiative) “The Asian Infrastructure Investment Bank and the SDR”  Xi Jinping claimed that the AIIB would adhere to the highest international standards. But as President Trump and others have noted, there are a number of important areas in which China does not abide by the WTO rules. The policy question is what should be done about it.

The Cato Institution began a recent review of China’s trade practices as follows: “There is a growing bipartisan sentiment in Washington that Chinese trade practices are a problem, since these practices are unfair to American companies in a number of ways. But there is disagreement about the appropriate response. Can multilateral institutions be of use here? Or is unilateralism the only way?” Their conclusion is that the WTO and other multilateral institutions would be the most effective way of continuing to pull China into compliance with the international rule-based system. “Disciplining China’s trade practices at the WTO-how -WTO complaints can help”

President Trump has unilaterally gone the other way. He has blocked Huawei, the world’s leading seller of 5G technology and smartphones, from U.S. 5G mobile phone systems and urged our European allies to do the same because of Huawei’s links with the Chinese government. He is attempting to block the sales of U.S. and other non-Chinese manufacturers of the semiconductor chips used in Huawei and other Chinese products to China.  “A-brewing-US-China-tech-cold-war-rattles-the-semiconductor-industry”  He is trying to ban TikTok, WeChat and other popular Chinese products from U.S. markets and raising tariffs on an increasing number of Chinese products imported into the U.S. Some of these measures might be justified on national security grounds but some seem more protectionist of U.S. companies that are not otherwise competitive.

We are basically forcing China to build its own alternative rules and approach to trade. It is even offering its own global tracking system in place of the GPS system the U.S. has given the world and they seem well along in dividing the World Wide Web and other Internet protocols into two worlds. https://www.voanews.com/east-asia-pacific/voa-news-china/chinas-rival-gps-navigation-carries-big-risks

A November 20, 2020 article by William Pesek highlights what Trump’s misguided trade war with China is producing: “On his presidential watch, Donald Trump did manage to make one thing great: economic cooperation within North Asia.

So chaotic and pernicious was the outgoing US president’s pivot away from Asia that China, Japan and South Korea are dropping the hatchet and joining hands. The unlikely union was formalized on November 15 with the signing of the 15-nation Regional Comprehensive Economic Partnership, or RCEP, free trade agreement.”  “US sidelined as China Korea and Japan unite”  The RCEP is a lighter more limited trade agreement than was the TPP (now the CPTPP) but it is led by China rather than the U.S.  Rather than converging to WTO standards it creates an alternative. 

“President Xi Jinping’s Friday [Nov 20, 2020] announcement of China’s intent to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), a high-standard mega regional trade pact, has been seen as a bold move to reassure the world of the country’s continuing commitment to reform and opening-up.” “News analysis: an uphill task for China to negotiate CPTPP accession agreement”  While Xi Jinping’s strategy for China’s ascension is to take over the leadership in forging the rules for the international order more to the liking of his regime, China’s younger and upcoming managerial and entrepreneurial class, many of whom studied in the U.S. and Europe, have seen and liked the freer and more open capitalist societies. Their patriotism and commitment to a rising China is informed by the knowledge that freer and more open economies thrive more than centrally controlled ones.  We should not overlook their potential for returning China to a path of liberalization and integration with the liberal international order enjoyed by the rest of us.

Xi Jinping and his government’s goal is to retain power by delivering rapid economic growth, which allows and requires a vibrant private sector, while overseeing tight political control. One example is provided by its Social Credit System.  “China’s social credit system-mark of progress or threat to privacy?”  This requires a different set of rules for cross border trade than set out by the WTO. But many of China’s world traveling citizens see China’s successful rise in more closely embracing free market capitalism. We should incentivize the later view.

President Trump’s trade policies have damaged the world’s rule-based trading system and hurt the American economy while turning China in a different direction. President elect Biden has indicated his interest in rejoining the TPP. He should give it and the rebuilding of the WTO and other multilateral bodies high priority.

Covid-19: What should Uncle Sam do?

On February 29 the first person in the United States died from Covid-19, the disease caused by SARS-CoV-2, the so-called novel coronavirus first observed in Wuhan, China.  On March 12, three more people succumbed from this disease bringing the total to 41. Ten days later on March 22, 117 died bringing the total to 419 as the exponential growth of Covid-19 deaths continues. Globally 15,420 had died by midday March 23 and deaths are rising fast.

How and where will this end?  Shutting the economy down and keeping everyone isolated in place until the virus “dies” for lack of new victims would ultimately kill everyone from starvation (if not boredom).  This pandemic will only end (stabilize with the status of the flu, which currently kills about 34,000 per year in the U.S.) when an effective vaccine is developed and administered to almost everyone. This will take one year to eighteen months if it is discovered today, and that is if we are lucky that the safety and effectiveness trials go according to plan. Without a vaccine, the pandemic will “end” when most of us have acquired immunity to it as a result of having and surviving (as almost everyone will) covid-19 –acquiring so called herd immunity.  This assumes that having and surviving the disease will immunize us. This is generally the case with viruses but has not yet been established for SARS-CoV-2.

Our hospitals and medical services could not handle the patient load if every one contracted this disease over too short a period, so it is important to slow down the pace of infection–so called flattening the curve (which could spike quickly as you see from the opening paragraph). The ideal strategy is to allow the infection of those with low risk of serious illness or death to speed up herd immunity with minimum demand on our limited health facilities, while protecting and treating the most vulnerable. The young and healthy are least vulnerable and the old and health-impaired are the most vulnerable.  We should reopen schools and restaurants after Easter and gradually restart our cultural entertainment lives adhering to higher standards of hygiene and public interaction. This would be ideal both with regard to speeding up herd immunity and with regard to minimizing that damage to the economy.

What should government do?

I am from the government and I am here to help (it is risky to attempt humor in these times, but what the hell). “Treasury Secretary Steven Mnuchin warned GOP senators that the unemployment rate could spike to nearly 20 percent if they fail to act dramatically…. The United States is expected to lose 4.6 million travel-related jobs this year as the coronavirus outbreak levies an $809 billion blow to the economy, according to a projection released yesterday by the U.S. Travel Association…. Research from Imperial College London, endorsed by the U.K. government, suggests that 2.2 million would die in the United States and 510,000 would die in Britain if nothing is done by governments and individuals to stop the pandemic.” “six-chilling-estimates-underscore-danger-of-coronavirus-to-public-health-and-the-economy”

“Infectious disease experts do not yet know exactly how contagious or deadly the novel coronavirus is. But compared to SARS and MERS, SARS-CoV-2 [as the novel coronavirus is now labeled] has spread strikingly fast: While the MERS outbreak took about two and a half years to infect 1,000 people, and SARS took roughly four months, the novel coronavirus reached that figure in just 48 days.”  “Mapping the Novel Coronavirus Outbreak”

The U.S. does not have the medical equipment or hospital beds that will be needed for those anticipated to need ICU facilities.  And as poorly equipped medical staff fall ill from their exposure to the Coronavirus, we will run out of enough doctors and nurses to care for them forcing us to default to the unpleasant realities of medical triage where doctors begin to assess and choose those that have a higher probability of survival and to leave the weakest to fend for themselves. This has already started in Italy.

So, what should the government do? Its response might be considered under three categories:  a) Stop or slow the spread of covid-19; b) Help state and local health service providers care for those needing it; and c) minimize the damage to the economy (i.e. to those whose income is affected by the disease or the measures taken to slow the spread of the disease).

As with all good policies, as the government determines its immediate approaches to the crisis, it should keep one eye on the longer run implications of the policies adopted. It should balance the most effective immediate actions with the minimization of what economists call moral hazard in the future.  The simplest and best-known example of moral hazard results from the now hopefully banished practice of governments bailing out banks when they fail as a way of protecting depositors. This one way bet for the banks–they profit when they win their bets and the government bails them out when they lose them–encouraged banks to take on excessive risks. In the U.S. we have replace bank bail outs with deposit insurance and efficient bank resolution (bankruptcy) procedures. “Key Issues in Failed Bank Resolution”

If economists do nothing else, we pay very close attention to incentives, particularly those created by government rules and regulations (including taxes and subsidies).  Government financial assistance must also be carefully designed to be temporary, recognizing the danger that expansions of government into the economy in emergencies have the bad habit of becoming permanent.

From these general considerations our response should be guided by these principles: Measures should be effective with the least cost. They should be narrowly targeted. They should be temporary. The cost of financial assistance should be shared by all involved–no bailouts.

Flatten the curve 

The government’s first priorities must be to slow the spread of covid-19 while supporting the medical needs of those contracting it.  Limiting the number of infected will limit the resulting deaths (guesstimated to be around 1% of those infected by this virus). Slowing the rate at which people are infected–flattening the curve–will reduce the peak demand for hospital beds and related services until a vaccine is found (once one or several candidates are discovered today, it will take 12 to 18 months of tests to establish its safety and effectiveness and manufacture enough to start administering it).

Despite clear warnings that the novel coronavirus posed serious threats to the U.S. for which we were not prepared, President Trump failed to act until very recently, calling the scare a Democratic plot as recently as February 28. “Trump-says-the-coronavirus-is-the-democrats-new-hoax”  “U.S. intelligence agencies were issuing ominous, classified warnings in January and February about the global danger posed by the coronavirus while President Trump and lawmakers played down the threat and failed to take action that might have slowed the spread of the pathogen, according to U.S. officials familiar with spy agency reporting.” “US-intelligence-reports-from-january-and-february-warned-about-a-likely-pandemic”

Countries that acted quickly to identify and isolate those infected by the virus have generally succeeding in slowing its spread without shutting their economies down.  South Korea, Singapore, and Taiwan have tested widely and quarantined those testing positive, many of whom were asymptomatic. Their economies have not been shut down. Restaurants and bars remain open as do schools in Singapore and Taiwan.  New cases in S Korea have fallen to very low levels two weeks ago and active cases have been declining since March 11 as more people recover than acquire the disease. On March 22 only two people died from the disease.  Cases and deaths have remained low in Japan, Singapore and Taiwan. The following describes the lesson’s from Singapore’s success: plan ahead, respond quickly, test a lot, quarantine the sick, communicate honestly with the public, live normally:  “Why-Singapore’s-coronavirus-response-worked–and-what-we-can-all-learn”

As a result of the U.S. failing to act earlier, the potential for this approach has been reduced in the U.S.  Nonetheless, the government should urgently remove its barriers to testing, increase the supply of tests, and pay most of the cost of testing. In order to discourage frivolous testing those being tested should pay a small amount of the cost (e.g. ten dollars per test).  Even today (March 21) very few Americans are tested despite frantic catch up efforts by the U.S. government.  “A-government-monopoly-led-to-botched-covid-19-test-kits-but-private-labs-are-now-saving-the-day” Positive test results (“cases”) in the U.S. are rising rapidly (983 new cases on March 16 jumped to 9,339 on March 22, for a total of 33,546). However, as so little testing has been possible, there is no way we can know whether this dramatic increase reflects increases in infection or only the increase in the identification of existing infections. “Peggy Noonan gets tested–finally”

As a result, the government has urged people to stay home, and most entertainment centers (theaters, cinemas, restaurants, gyms, and bars) have closed, and a few state governors are mandating it.  Many international flights have been cancelled.  Aside from grocery stores and pharmacies, most shops and malls have closed. A controversy is raging over whether closing schools does more harm than good. Among the arguments against it is that because serious illness and death among the young is rare but they can spread the disease (to their families at home and others), attempting to block their infection interferes with herd immunization (protection from infection as the result of a large proportion of the population becoming immune as the result of recovery from infection).

The economic impact of those drastic measures will be explored below, but the government must now urgently prepare for the surge of covid-19 patients promising to overwhelm our brave medical health care workers, medical supplies and hospital beds even with these draconian measures. Priorities must be given to properly equipping medical service providers and training their replacements as they fall ill. Hospital beds and respirators and other equipment needed for the more seriously ill must be urgently produced, in part by turning out and away, less seriously ill patients and those with non-emergency, elective treatments. We can delay the investigation into why these steps where not taken two months ago when the need was identified.

Care for the sick

The government should support the market’s natural incentives to develop better treatments and ultimately a vaccine (i.e. profit). This raises challenging policy issues. Protecting the patent rights of firms developing treatments protects the profit incentive for them to do so. However, the sharing of research findings, thus threatening such patents, can greatly accelerate the discovery of helpful medicines or procedures. Hopefully rights can be established and protected that both encourage drug development and cooperative information sharing.

The failure of the U.S. government to provide for or allow significant testing for covid-19 is a scandal. The government should get out of the way. “Coronavirus-and-big-government” Its claim last week and the week before that testing was opening up is sadly not true.  By March 19th the U.S. with a population of 327 million had only tested 103,945 people (0.03%).  S. Korea with a population of 51.5 mil. had tested 316,664 by March 20th (0.6%) and Germany with a population of 82.9 mil. had tested 167,000 by March 15th (0.2%)  “Covid-19-why-arent-we-prepared”

President Trump’s trade war has damaged world’s ability to fight covid-19 in general but more specifically his tariffs on medical supplies are contributing to their shortage in the U.S.  “The US-China trade war has forced US buyers to reduce purchases of medical supplies from China and seek alternative sources. US imports of Chinese medical products covered by the Trump administration’s 25 percent tariffs dropped by 16 percent in 2019 compared with two years earlier.”  “Tariffs-disrupted-medical-supplies-critical-us-coronavirus-fight”

Save the economy

Having missed the opportunity to flatten the curve via testing and targeted quarantines, the U.S. has taken much more drastic steps to restrict public interactions, shutting down the entertainment, educational, and transportation sectors of the economy. These should result in temporary interruptions of the supply of these services that will bounce back when the restrictions are lifted. Some output will be lost forever (lost classroom time, and restaurant meals) but others can be recouped or at least restored to original levels (rates). Clothing and other retail items not purchased during the shut down can be purchased later.

What the economy will look like afterward (hopefully only a few months) will depend on several factors. The first is the extent to which our public behavior is altered permanently. Home movies might permanently replace some part of our usual attendance to the cinema. Teleconferencing might permanently reduce meeting travel or accelerate the existing trend in that direction, etc.

The policies being debated in congress at this moment for protecting individuals and firms from the financial cost of the temporary shutdown can profoundly affect the future composition and condition of the economy. Every big firm out there is working on how they can tap some of the taxpayer’s money that government will be giving out. Those pushing government interventions into new areas on a permanent basis will exploit the occasion to slip in their favorite policies. Unfortunately, once the government moves into an area– it rarely withdraws. Almost 19 years later, the horrible Patriot Act, adopted when a scared public was willing to trade off liberty for security, is still largely with us.

Our public interest would be served by incentives that lead those who might be sick with covid-19 to stay home rather than risk infecting others, and by policies that enable viable firms that lost customers and individuals who stayed home to bridge their financial gap until returning to normal. Affected firms and individuals will continue to have expenses (food, rent, mortgages, etc.) but no incomes. They should be provided with the funds to meet these expenses in order to return to life/work when the lights go back on. The sharing of the cost of those funds must be considered politically fair and must incentivize the desired behavior. Everyone must have some skin in the game (a share of the cost). Adopting measure that fill those criteria will not be easy.

The government (taxpayers) should cover much of the cost of the covid-19 related medical services and hospital costs, including very widespread testing. Medical service providers should be tested daily (e.g., several doctors have died from covid-19 in Italy). Anyone staying at home and testing positive should receive sick leave paid for by the government.

Assistance to companies and the self-employed should be as targeted as possible on those forced to reduce or stop operations as a result of covid-19. Where possible, assistance should take the form of loans to companies that continue to pay wages to their employees even if not working. Restrictions should be placed on how such loans are used (no stock buy backs, or salary increases during the life of the loans). Bank and lending regulators should allow and in fact encourage temporary loan forbearance by the lenders on temporary arrears from otherwise viable firms. “Bailout-stimulus-rescue-check” One small businessman convincingly argued that wage subsidies that keep working on the payroll are better than generous unemployment insurance, which makes it easier for firms to lay off their workers. “Dear-congress-i’m-a-small-business-owner-heres-what-my-business-needs-to-survive”

What about the big companies, such as Boeing, the airlines, the Hotel Chains, and Cruise ship operators? Yes, they should be included in the loan forbearance and incentive loan programs, but they should receive no special consideration beyond that. If government (partially) guaranteed loans through banks to pay wages and other fixed expenses for a few months are not enough to finance a firm’s expenses without income for a few months it is probably not viable in the long run anyway and should be resolved through bankruptcy as were GM and Chrysler in earlier financial crises. This would wipe out the stakes of owners while preserving the ability of the firm to return to profitable operation with new owners. “Bailing-out-well-if-bail-out-we-must”

Monetary policy

The American economy (and elsewhere) is suffering in the first instance a supply shock (sick people unable to work and produce). This fall in income from supply disruptions also reduces demand. Cutting the Fed’s already low interest rate target to almost zero is a mistake. No one will undertake new or expanded investments because of it, and its impact on reducing the return on pensions and other savings will, if anything, reduce spending. The last decade of very low interest rate policy targets has already contributed to excessive corporate debt and inflated stock prices (recently deflated back to normal).

Injecting liquidity via new lending facilities and international swap lines, as the Fed is now undertaking, is the correct response. If lenders allow their borrowers to delay repayments for a few months, they need to replace that missing income somehow (rather than calling in nonperforming loans and bankrupting the borrower). The Federal reserve should substitute for that income by lending to banks freely against the good collateral of government debt or government guaranteed debt.

“The vital need of everyone in the economy, from the corner drugstore to the local transit authority to the mightiest multinational, is liquidity: credit to meet payroll and other key obligations so as to remain solvent until the end of what we all must hope is a finite crisis.”  “Here’s-an-economic-aid-plan-better-than-mitch-McConnell’s”

Macroeconomic policy

As noted above, the government’s help should be narrowly targeted to the direct victims of covid-19.  A general fiscal or monetary stimulus is not needed or desirable.  Nonetheless, it will add to the federal debt that is already bloated by years of annual deficits at the peak of a business cycle when a surprise is customary and appropriate.

“The United States is not confronted with a financial crisis and a follow-on crisis of demand, as in 2008 or 1929. Rather, previously robust consumption and production are being deliberately halted to save lives. Thus, traditional tools of monetary and fiscal stimulus, such as zero interest rates and direct cash aid to households, are unlikely to prove decisive. You can’t shop, or invest in new construction, while on lockdown.”  “Here’s-an-economic-aid-plan-better-than-mitch-McConnell’s”

This is a dangerous period both for our personal health and for the health of the economy. Affected firms should be helped in order for them to continue paying their employees and to remain solvent until they can return to production. But the United States has failed to prepare properly and is handling the fight against covid-19 poorly. We need to reopen our schools and restaurants and return to normal at a reasonable pace while allowing herd immunity to develop at a faster pace while supporting the most rapid development of a vaccine possible. Don’t fight this wildfire with our eyes shut while enhancing the dangers of future fires from ill-advised measures undertaken in this emergency environment.

Stay strong everyone. We will all get through this.

Social Distancing

Research lead by Neil Ferguson and his colleagues at Imperial College London suggests that a staggering 2.2 million would die in the United States and 510,000 in Britain if nothing is done by governments and individuals to stop the pandemic (no social distancing or hand washing, etc.).  Imperial College London study  The U.S. was late and bumbling in addressing the Novel Coronavirus coming from China in December. The Food and Drug Administration (FDA) refused to authorize the use of tests approved by the EU and the test developed by Centers for Disease Control and Prevention (CDC) was flawed and had to be withdrawn. The United States remains embarrassing and dangerously behind other countries in testing and other preparations for dealing with the disease.  “Coronavirus-testing-delays-caused-red-tape-bureaucracy-scorn-private-companies”

Unable now to contain the virus in a targeted way, the U.S. has largely shut down its schools, theaters, restaurants and other places of public gatherings as well as flights from abroad. The Ferguson “report concludes that the British government might be able to keep the number of dead below 20,000 by enforcing social distancing for the entire population, isolating all cases, demanding quarantines of entire households where anyone is sick and closing all schools and universities — for 12 to 18 months, until a vaccine is available”. A comparable figure for the U.S. implies a reduction in the death rate to 86,000.

For perspective, traffic accidents in the U.S. in 2017 killed 40,100.  More than forty-seven thousand committed suicide that year and 55,672 died from influenza and pneumonia. When compared with ordinary flu, covid-19 spreads more rapidly and is ten times as deadly, but we still do not know very much else about its properties.  But, we can expect a relatively large number of deaths from this new virus no matter what we do.  But doing nothing will increase deaths considerably.

What steps should the U.S. take?  We don’t ban cars because people die in them. We choose to take calculated risks if they are not “excessive”.  https://wcoats.blog/2016/12/27/our-risks-from-terrorists/

The extreme measures being taken in the U.S. proceeded without serious estimates of the economic costs to the economy and the spill over health risks of children kept home with vulnerable grandparents, etc.  “The CDC guidelines advised that short- and medium-term school closures do not affect the spread of the virus and that evidence from other countries shows places that closed schools, such as Hong Kong, ‘have not had more success in reducing spread than those that did not,’ such as Singapore.  But this guidance was not released until Friday [March 13], after the cascade of school closings had begun.”  “States-are-rushing-to-close-schools-but-what-does-the-science-on-closures-say”

Our extreme reaction will generate huge costs that cannot be fully known reverberating for years to come. We can be pretty certain that there will be unintended, undesirable consequences quite beyond the disruption of our pleasurable, cultural activities (bankruptcies of otherwise viable firms and the resulting loss of jobs, etc.). The government (congress and the administration working together for a change) is attempting to anticipate and ameliorate as many of those consequences as possible. One example of the search for cost effective balance of cost and mitigation involves the stopping of flights from Europe.  The cost of monitoring arriving airline passengers before boarding abroad is very likely cheaper than the economic disruption and damage of forbidding foreign visitors at all.  Following Trump’s announcement of the travel ban (once his team sorted out and clarified what he was actually imposing) the American Civil Liberties Union announced, “These measures are extraordinary incursions on liberty and fly in the face of considerable evidence that travel bans and quarantines can do more harm than good.”

Unlike the U.S., Britain has not closed its schools and restaurants. But as I am writing this, the UK just announced that its schools will close Friday March 20.  The Patriot Act passed quickly after the 9/11 terrorist attacks in the U.S. on September 11, 2001 (for those of you too young to remember) reminds us how quickly and easily we surrender our revered liberties when we are scared.  Almost 19 years after 9/11 we still have the dangerously intrusive provisions of the Patriot Act.  Once freedoms are surrendered and the government steps in it seems to be hard to regain them.  The extreme measures being taken in the U.S. and elsewhere to slow the spread of covid-19 provide us with the latest example.

On March 16, Deborah Birx, White House coronavirus response coordinator, reported that models based on data available so far indicated that the biggest reduction in deaths came from “social distancing, small groups, not going in public in large groups. But the most important thing was if one person in the household became infected, the whole household self-quarantined for 14 days. Because that stops 100 percent of the transmission outside of the household,”

The biggest bang for the buck comes from individuals protecting themselves by social distancing, hand washing, and normal (and perhaps enhanced) care to avoid the sick and avoid exposing others when we are sick as we generally do now. Clear public health guidance from the government could go (would have gone) a long way to encourage the enhancement of such diligence.  The Kennedy Center for the Performing Arts never closed down during the flu season.

Covid-19 calls for vigorous government action, even now when it is too late to stop it any time soon. We will need extra hospital beds, medicine, respirators, protective gear, replacements for infected health workers, vaccine research, development, manufacture and administration and more.  Soon we will require replacements for the many brave health care workers such as nurses and doctors as they also become infected with the virus. But as with all decisions, private and public, a careful assessment of costs and benefits of different courses of action will produce the best result.  Knowledgeable public information to guide the natural protective self-interests of each of us and our usual concern and respect for the well-being of our families, friends and neighbors can carry us a long way toward minimizing the further spread of this disease at minimal cost to lives and property.

P.S.  In my previous blog of March 15 (Covid-19, why aren’t we prepared) I reported Beth Cameron’s claim that the National Security Council Directorate for Global Health Security and Biodefense was disbanded in May 2018.  Ms. Cameron was its director at the time.  Yesterday Tim Morrison, director of the successor unit for a year in 2018-19, “No-white-house-didn’t-dissolve-its-pandemic-response-office”, explained that its staff and function were merged with two other units performing overlapping functions in order to improve efficiency without a loss of its capacity “to do everything possible within the vast powers and resources of the U.S. government to prepare for the next disease outbreak and prevent it from becoming an epidemic or pandemic.”  I apologize for misrepresenting what happened and expect Mr. Morrison to apologize for the disastrous failure of his unit to fulfill its mandate.

Is Trump killing his own re-election?

The Fed (Federal Open Market Committee) is meeting this week to review and set or reset monetary policy.  I don’t know whether it should increase its policy rate, leave it the same or reduce it. https://www.adamsmith.org/blog/returning-to-currencies-with-hard-anchors  The market expects a one quarter percent reduction in the rate.  President Trump is quoted yesterday as saying it should be reduced more than that. WSJ: the confusing Fed

There are several problems with Trump’s statement. One is that if the Fed reduces the rate, its claim to be reacting to the data and its mandate is undercut by the President’s interference. Is the Fed doing what seems best or responding to political pressure?

But if the U.S. economy is heading South, as it may be, it is probably because of the damaging effects on the U.S. and world economies of Trump’s trade wars with almost everyone but especially with China. Trump’s tariffs have imposed significant costs on the American consumers who pay them with higher prices for targeted imports. More importantly, his trade wars have injected significant uncertainty into the continued viability of the global supply chains that have helped lower costs here and abroad and increased world output.  Their retrenchment is lowering world income and pushing many economies, including potentially the U.S. economy into recession. A U.S. recession a year from now will seriously damage Trump’s chances of reelection.

Trump’s wars on trade seem to be motivated by his mistaken belief that the U.S. trade deficit with China, Germany and others reflects unfair trade practices on their part. His misuse of a national security concern to impose protectionist tariffs and restrictions on foreign competitors (protecting inefficient U.S. industries we would be better off allowing competition to shrink) seems motivated by vote buying. https://wcoats.blog/2018/09/28/trade-protection-and-corruption/  The result is a reduction in our income and potentially his electoral defeat. Our trade deficits largely reflect the use of the U.S. dollar in international reserves (which require a deficit to supply them) and our large and growing fiscal deficits (much of which is being financed by China and other trade surplus countries). Trump’s abandonment of government spending restraint is the cause of those twin deficits https://nationalinterest.org/feature/who-pays-uncle-sams-deficits-26417

It’s not that we don’t have real issues with some of China’s trade related practices, but Trump’s approach to addressing them is not productive. Rather than working with the EU and Japan and others who share our concerns to confront China together, he is attacking all of them with threats of more tariffs. Rather than strengthening the WTO, he is weakening it. Rather than using the Trans Pacific Partnership (a significant advance in modern trade agreements) to encourage China to adopt its rules, Trump withdrew the U.S. from the agreement– a huge mistake. The real question is how much more damage will Trump inflict on the world economy before he surrenders and declares victory or is voted out of office. https://wcoats.blog/2019/06/07/the-sources-of-prosperity/