The Roundup: week ending 6/26/2020

The Roundup: week ending 6/26/2020

 

Three things your business should be watching this week:

1. Daily record-highs of new infections are driving businesses to re-close; the government isn’t what will restore the economy, curing the virus will

2. Governments have used four different strategies to address the pandemic; we reiterate that fragmented outcomes require a decentralized plan

3. Suspending H-1B visas is a big loss to American competitiveness and a gift to China

 

 

 

1. What we’re seeing is not the second-wave of COVID-19 in the US. It’s the acceleration of the first wave.

 

 

The Takeaway: This week, the US has set back-to-back daily records for the highest number of new infections reported within the country. Popular graphs circulating around social media have depicted how the number of new COVID-19 infections in the US has already overtaken the total number of daily outbreaks in the EU. Still, federal and state governments continue to avoid new measures to stop the virus.

 

 

However the longer the virus persists, the more it becomes clear that government orders for lockdowns are not what is driving the US’s economic problems, but the virus itself. Even with phase one re-openings taking place in several states, businesses themselves are making the decision to close (see Apple re-closing stores in Texas) and many individuals continue to stay home, despite local governments’ wishes to open up the economy. Business decisions and individual behavior is what will determine how long it will take the economy to recover, regardless of whether lockdowns continue, and that itself will be determined by how long it takes to eradicate the virus.

 

 

2. As the US fumbles through its strategy to suppress COVID-19, we’ve outlined four models on how governments have responded (or not responded) to the pandemic:

 

 

The Takeaway: As the US continues to muddle about in its approach in stopping new infections, other countries are taking more forceful action to prevent travelers from bringing the virus back on shore. After six months of watching how governments are responding the pandemic, there are basically four models of how the virus is evolving:

 

 

  • Suppression: the advanced Asian economies have been able to fully suppress the virus, principally due to heavy government intervention. Widespread testing, advanced (and intrusive) tracking and tracing, quarantining infected individuals, and healthcare investments have brought life back to normal, for the most part. This allows economies, at least theoretically, to operate close to full capacity
  • The Hammer and Dance: First identified in this article, Western Europe largely took large steps to suppress the virus with heavy lockdowns in the initial months to buy time to find new solutions and to bring cases down to a manageable numbers so that while the virus still spreads, it does so slowly. This is a much blunter weapon that suppression but still gives hope of a semi-normal life for the next year
  • The Whack-a-mole: Impose lockdowns only when caseloads are really bad but do not impose new measures and ramp up capacity in the meanwhile. This is a very blunt tool – which is what the American appears to shape up to. We are looking at a combination of high number of cases and a very uncertain economic outcome
  • Do Nothing: Brazil has spearheaded the do nothing approach to address the virus, which unsurprisingly has resulted in new infections skyrocketing

 

 

While the Do Nothing crowd may (or may not!) be able to suppress the political fallout at home, the EU travel ban shows you cannot do the same abroad. If this continues, expect continued divergence in the treatment from foreign countries, with possibly large implications for travel and trade.

 

 

 

3. Busy week for the USTR as it’s considering $3.1 billion in tariffs on imports from the EU.

 

 

The Takeaway: The US is continuing its charge against EU businesses over subsidies made to its major aircraft manufacturers by threatening tariffs on over 30 goods. As the tension between the US and EU escalates, it is clear that the trade war will continue on all fronts. There are clear business implications to consider here: as the US continues to press on in its retaliation against EU subsidies, US businesses dependent on imports will be paying the price for these tariffs, and the escalation may not end here.

 

 

Also, this week Robert Lighthizer unveiled a new front in the trade war: a tariff reset in the context of the WTO. This is a pretty technical debate but basically the US is out to reduce the tariff ceiling that countries can (and sometimes do) apply to US goods. Tariff reduction is a worthy goal, but given the increasing paralysis at the WTO with the dispute mechanism inoperable as of December, the calls in the US Senate for the US to leave the organization altogether, and a general secretary stepping down before his term was over, it is unclear how the system can be reformed in an orderly manner.

 

 

4. Suspension of the H-1B visa is a gift to China – and also the UK, Canada, Germany, and other wannabe tech hubs.

 

 

The Takeaway: The suspension of work visas poses a huge threat to some of the most competitive sections of the US economy – financial services and tech being the most prominent. While these high value-add sectors in US will take a hit, keeping high-skilled foreign workers from the US will also be a gift to other countries that have had a harder time recruiting foreign talent in the past. Countries that are trying to compete with American big tech companies such as China, the UK, Canada, and Germany may find this the window of opportunity they have needed to build up more skilled labor capacity in these industries.

 

 

Moreover, this goes to show that tech is not getting its way in the US. Big Tech was under increasing government scrutiny before Coronavirus, and in fact before the US-China trade war. The industry’s main asset in the US has been its strategic importance to US economic power. But the move to suspend work visas for high-skilled foreign workers shows that the US government continues to ignore this element of global strategy – and in fact does not have a strategy for at all.  Big Tech has in some ways been relying on its economic importance and its position as a bulwark for the US against Chinese tech encroachment. But these kinds of moves by the US government should worry the industry – as it seems these, and most other, industry arguments are being ignored.

 

 

5. Voters are going to the polls in Eastern Europe, but don’t expect anything new.

 

 

The Takeaway: Elections this week in Serbia, Poland, and Russia show that far-right parties are maintaining their strongholds. In Serbia, the ruling populist party and leader were re-elected despite boycott on the elections by the opposition. In Russia, voting is taking place on a referendum that may keep Putin in power for another 15 years. In Poland, the incumbent Duda won the presidential bid and is up for re-election on Sunday. Despite the biggest disruption of our lifetimes, the pandemic has not done much to weaken the hold of authoritarianism in Eastern Europe and the outcomes of the elections next week will likely show that it’s alive and well.

 

 

26.06.2020

Strategic planning

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