When China Sneezes
The COVID-19 outbreak has hit at a time of much greater economic vulnerability than in 2003, during the SARS outbreak, and China's share of world output has more than doubled since then. With other major economies already struggling, the risk of outright global recession in the first half of 2020 seems like a distinct possibility.
NEW HAVEN – The world economy has clearly caught a cold. The outbreak of COVID-19 came at a particularly vulnerable point in the global business cycle. World output expanded by just 2.9% in 2019 – the slowest pace since the 2008-09 global financial crisis and just 0.4 percentage points above the 2.5% threshold typically associated with global recession.
Moreover, vulnerability increased in most major economies over the course of last year, making prospects for early 2020 all the more uncertain. In Japan, the world’s fourth-largest economy, growth contracted at a 6.3% annual rate in the fourth quarter – much sharper than expected following another consumption-tax hike. Industrial output fell sharply in December in both Germany (-3.5%) and France (-2.6%), the world’s fifth- and tenth-largest economies respectively. The United States, the world’s second-largest economy, appeared relatively resilient by comparison, but 2.1% real (inflation-adjusted) GDP growth in the fourth quarter of 2019 hardly qualifies as a boom. And in China – now the world’s largest economy in purchasing-power-parity terms – growth slowed to a 27-year low of 6% in the last quarter of 2019.
In other words, there was no margin for an accident at the beginning of this year. Yet there has been a big accident: China’s COVID-19 shock. Over the past month, the combination of an unprecedented quarantine on Hubei Province (population 58.5 million) and draconian restrictions on inter-city (and international) travel has brought the Chinese economy to a virtual standstill. Daily activity trackers compiled by Morgan Stanley’s China team underscore the nationwide impact of this disruption. As of February 20, coal consumption (still 60% of China’s total energy consumption) remained down 38% from the year-earlier pace, and nationwide transportation comparisons were even weaker, making it extremely difficult for China’s nearly 300 million migrant workers to return to factories after the annual Lunar New Year holiday.
The disruptions to supply are especially acute. Not only is China the world’s largest exporter by a wide margin; it also plays a critical role at the center of global value chains. Recent research shows that GVCs account for nearly 75% of growth in world trade, with China the most important source of this expansion. Apple’s recent earnings alert says it all: the China shock is a major bottleneck to global supply.
But demand-side effects are also very important. After all, China is now the largest source of external demand for most Asian economies. Unsurprisingly, trade data for both Japan and Korea in early 2020 show unmistakable signs of weakness. As a result, it is virtually certain that Japan will record two consecutive quarters of negative GDP growth, which would make it three for three in experiencing recessions each time it has raised its consumption tax (1997, 2014, and 2019).
The shortfall of Chinese demand is also likely to hit an already weakening European economy very hard – especially Germany – and could even take a toll on a Teflon-like US economy, where China plays an important role as America’s third-largest and most rapidly growing export market. The sharp plunge in a preliminary tally of US purchasing managers’ sentiment for February hints at just such a possibility and underscores the time-honored adage that no country is an oasis in a faltering global economy.
In the end, the epidemiologists will have the final word on the endgame for COVID-19 and its economic impact. While that science is well beyond my expertise, I take the point that the current strain of coronavirus seems to be more contagious but less lethal than SARS was in early 2003. I was in Beijing during that outbreak 17 years ago and remember well the fear and uncertainty that gripped China back then. The good news is that the disruption was brief – a one-quarter shortfall of two percentage points in nominal GDP growth – followed by a vigorous rebound over the next four quarters. But circumstances were very different back then. In 2003, China was booming – with real GDP surging by 10% – and the world economy was growing by 4.3%. For China and the world, a SARS-related disruption barely made a dent.
Again, that is far from being the case today. COVID-19 hit at a time of much greater economic vulnerability. Significantly, the shock is concentrated on the world’s most important growth engine. The International Monetary Fund puts China’s share of global output at 19.7% this year, more than double its 8.5% share in 2003, during the SARS outbreak. Moreover, with China having accounted for fully 37% of the cumulative growth in world GDP since 2008 and no other economy stepping up to fill the void, the risk of outright global recession in the first half of 2020 seems like a distinct possibility.
Yes, this, too, will pass. While vaccine production will take time – 6-12 months at the very least, the experts say – the combination of warmer weather in the northern hemisphere and unprecedented containment measures could mean that the infection rate peaks at some point in the next few months. But the economic response will undoubtedly lag the virus infection curve, as a premature relaxation of quarantines and travel restrictions could spur a new and more widespread wave of COVID-19. That implies, at a minimum, a two-quarter growth shortfall for China, double the duration of the shortfall during SARS, suggesting that China could miss its 6% annual growth target for 2020 by as much as one percentage point. China’s recent stimulus measures, aimed largely at the post-quarantine rebound, will not offset the draconian restrictions currently in place.
This matters little to the optimistic consensus of investors. After all, by definition shocks are merely temporary disruptions of an underlying trend. While it is tempting to dismiss this shock for that very reason, the key is to heed the implications of the underlying trend. The world economy was weak, and getting weaker, when COVID-19 struck. The V-shaped recovery trajectory of a SARS-like episode will thus be much tougher to replicate – especially with monetary and fiscal authorities in the US, Japan, and Europe having such little ammunition at their disposal. That, of course, was the big risk all along. In these days of dip-buying froth, China’s sneeze may prove to be especially vexing for long-complacent financial markets.
The Economic Consequences of the Coronavirus
The Chinese government's measures to tackle the coronavirus epidemic are handicapping the country’s economy and disrupting supply chains and tourism across Asia. Sharing information with the public may be more effective in containing the outbreak than draconian restrictions on freedom of movement – and less economically damaging.
TOKYO – Since a new type of coronavirus was reported in Wuhan, China, last December, the number of people infected worldwide has soared to over 44,000, and the death toll now exceeds 1,100. The virus is spreading across Asia – including to Japan, South Korea, Singapore, Thailand, Vietnam, and Malaysia – and also to countries in Europe and North America, although only one death has been reported outside China so far.
It remains to be seen how lethal this new virus ultimately will be. At the moment, it is certainly less severe than the 2002-03 SARS (severe acute respiratory syndrome) epidemic, caused by a different coronavirus. The new bug has killed more people, but SARS was deadlier, killing almost 10% of the 8,096 people worldwide known to have been infected.
Nonetheless, on January 23, Chinese President Xi Jinping’s government announced a lockdown of Wuhan, a city of 11 million people. Since then, the number of Chinese cities under quarantine has risen to 16, and more may follow.
The quarantines and other compulsory measures aimed at containing the disease are severely handicapping the Chinese economy, with knock-on effects elsewhere in Asia. Wuhan, for example, is the capital of Hubei Province, one of China’s industrial centers. Leading Japanese carmakers Honda and Nissan have factories there, as do several of their European rivals. Producers of car parts, electronic components, and industrial equipment also have important manufacturing facilities in the region. Many of these factories have had to halt production, because their employees have been unable to return after the Chinese New Year holiday.
These shutdowns constitute a major shock to global companies’ supply chains across Asia. Based on the value of its exports to mainland China and Hong Kong relative to GDP, Taiwan is likely to be the hardest hit, followed by Vietnam, Malaysia, and South Korea. Regional employers face a further supply shock because many Chinese working in Japan or other Asian countries will not or cannot return from China. Furthermore, the coronavirus outbreak will disrupt exports of Chinese products to Japan, in particular processed food and clothing. All these factors will cause supply shortages and thus dampen economic growth among China’s trade partners.
The coronavirus also will cause a large demand shock, not least because Chinese travelers have been a great boon to many countries’ tourism sectors. Chinese tourist numbers are now falling sharply as China bars its citizens from group tours abroad, and many countries refuse or restrict the entry of Chinese. Judging by the size of Chinese visitors’ expenditures relative to GDP, popular destinations such as Thailand, Vietnam, and Singapore will take the hardest hit. Japan will be especially concerned should the outbreak persist, because the Summer Olympic Games are scheduled to start in Tokyo on July 24.
But even if the virus is a long way from reaching its peak, China can mitigate the negative aggregate-demand shock with stimulus measures such as the one announced by the People’s Bank of China on February 2. Other governments and central banks in the region can take similar steps if necessary. Companies can substitute disrupted supply chains with alternative sources of inputs, and consumption may shift further online. Some of these changes may turn out to be permanent.
Although it is not clear how quickly an effective coronavirus vaccine can be developed, the duration of the current crisis will depend on two main factors. The first is whether and when the Chinese authorities can bring the situation under control. With the death toll still mounting, it is hard to tell, but if the government quarantines more cities, then the economic downturn will certainly steepen.
The second question is whether other countries can contain the virus’s spread. Some Japanese medical experts say that a substantial number of Japanese must already be infected, given that people arrived freely in the country from China for a month after the outbreak began. Unlike in China, however, the virus has caused no deaths in Japan so far, which raises questions about to the nature of the disease and how best to prevent and treat it. In order to determine the best public-health response as quickly as possible, China and other affected countries should share their current experiences immediately.
In fact, medical experts recommend shifting preventive resources from countries’ borders to the interior, by giving people easy access to self-inspection kits. Those who are infected should then be ordered to stay home and avoid contact with others.
As in the case of influenza, sharing information with the public may be much more effective in minimizing the spread of the coronavirus than draconian restrictions on freedom of movement, which are very costly to humans’ physical and psychological health, as well as to the economy. Other governments currently considering national responses to the new virus should bear this in mind. And the Chinese authorities should consider reviewing their approach to future outbreaks.
Will the Coronavirus Trigger a Global Recession?
The COVID-19 outbreak seems to have raised the odds of a global recession dramatically. But even if no downturn materializes in the near term, the outbreak, together with US President Donald Trump's trade policy, may herald the end of the era when steadily rising international trade buttressed global peace and prosperity.
CAMBRIDGE – At the start of this year, things seemed to be looking up for the global economy. True, growth had slowed a bit in 2019: from 2.9% to 2.3% in the United States, and from 3.6% to 2.9% globally. Still, there had been no recession, and as recently as January, the International Monetary Fund projected a global growth rebound in 2020. The new coronavirus, COVID-19, has changed all of that.
Early predictions about COVID-19’s economic impact were reassuring. Similar epidemics – such as the 2003 outbreak of severe acute respiratory syndrome (SARS), another China-born coronavirus – did little damage globally. At the country level, GDP growth took a hit, but quickly bounced back, as consumers released pent-up demand and firms rushed to fill back orders and re-stock inventories.
It is becoming increasingly clear, however, that this new coronavirus is likely to do much more damage than SARS. Not only has COVID-19 already caused more deaths than its predecessor; its economic consequences are likely to be compounded by unfavorable conditions – beginning with China’s increased economic vulnerability.
China’s economy has grown significantly more slowly in the last decade than it did previously. Of course, after decades of double-digit growth, that was to be expected, and China has managed to avoid a hard landing. But Chinese banks hold large amounts of non-performing loans – a source of major risks.
As the COVID-19 outbreak disrupts economic activity – owing partly to the unprecedented quarantining of huge subsets of the population – there is reason to expect a sharp slowdown this year, with growth falling significantly below last year’s official rate of 6.1%. During the recent meeting of G20 finance ministers, the IMF downgraded its growth forecast for China to 5.6% for 2020 – its lowest level since 1990.
This could hamper global growth considerably, because the world economy is more dependent on China than ever. In 2003, China constituted only 4% of global GDP; today, that figure stands at 17% (at current exchange rates).
Moreover, because China is a global supply-chain hub, disruptions there undermine output elsewhere. Commodity exporters – including Australia, and most of Africa, Latin America, and the Middle East – are likely to be affected the most, as China tends to be their largest customer. But all of China’s major trading partners are vulnerable.
For example, Japan’s economy already contracted at an annualized rate of 6.3% in the fourth quarter of 2019, owing to last October’s consumption-tax hike. Add to that the loss of trade with China, and a recession – defined as two consecutive quarters of shrinking GDP – now seems likely.
European manufacturing could also suffer considerably. Europe is more dependent on trade than, say, the United States, and is linked even more extensively to China through a web of supply chains. While Germany narrowly escaped recession last year, it might not be so lucky this year, especially if it fails to undertake some fiscal expansion. As for the United Kingdom, Brexit may finally have the long-feared economic consequences.
All of this could happen even if COVID-19 does not become a full-blown pandemic. In fact, while the virus is proliferating in some countries, such as South Korea, a high infection rate is not a prerequisite for economic hardship. The specter of contagious disease tends to have a disproportionate impact on economic activity, because healthy people avoid traveling, shopping, and even going to work.
Some still cling to growth optimism, rooted in recent trade agreements negotiated by US President Donald Trump’s administration: the “phase one” deal with China and the revised free-trade agreement with Canada and Mexico. But while those agreements are far better than they would have been had Trump stuck to the hardline positions he once defended, they do not represent an improvement over the situation that prevailed before he took office; if anything, their net impact is likely to be negative.
Consider the “phase one” deal with China: not only does it leave in place high tariffs; it also remains fragile, owing to a lack of credibility on both sides. In any case, its impact is likely to be limited. China may not be able to deliver on its promise to purchase an extra $200 billion worth of goods from the US, and even if it does, that is unlikely to translate into higher US exports. Instead, those exports will simply be diverted from other customers.
While global recessions are exceedingly difficult to forecast, the odds of one – particularly one characterized by less than 2.5% growth, a threshold set by the IMF – now seem to have risen dramatically. (Unlike advanced-economy growth, global growth rarely falls below zero, because developing countries have higher average trend growth.)
So far, US investors seem unconcerned about these risks. But they may be taking too much comfort from the US Federal Reserve’s three interest-rate cuts last year. Should the US economy falter, there is nowhere near enough room for the Fed to cut interest rates by 500 basis points, as it has in past recessions.
Even if a recession does not materialize in the near term, Trump’s approach to trade may herald the end of the era when steadily rising international trade (as a share of GDP) buttressed global peace and prosperity. Instead, the US and China may continue on the path toward economic decoupling, within the context of a broader process of de-globalization. COVID-19 did not place the world’s two largest economies on this path, but it could well hasten their journey along it.
A Pandemic of Deglobalization?
At this stage, there is no telling how bad the COVID-19 epidemic will become before the contagion subsides or an effective, widely available vaccine is rolled out. In any case, we should not be surprised if the crisis leads to far-reaching, historically significant global change.
PRINCETON – The outbreak of the new coronavirus, COVID-19, that began in Wuhan, China, may well turn into a global pandemic. Nearly 50 countries have confirmed cases of the virus, with the precise nature of the transmission mechanism remaining unclear.
Pandemics are not just passing tragedies of sickness and death. The omnipresence of such mass-scale threats, and the uncertainty and fear that accompany them, lead to new behaviors and beliefs. People become both more suspicious and more credulous. Above all, they become less willing to engage with anything that seems foreign or strange.
Nobody knows how long the COVID-19 epidemic will last. If it does not become less contagious with the arrival of spring weather in the northern hemisphere, nervous populations around the world may have to wait until a vaccine is developed and rolled out. Another major variable is the effectiveness of public-health authorities, which are significantly less competent in many countries than they are in China.
In any case, factory closures and production suspensions are already disrupting global supply chains. Producers are taking steps to reduce their exposure to long-distance vulnerabilities. So far, at least, financial commentators have focused on cost calculations for particular sectors: automakers worried about shortages of parts; textile makers deprived of fabric; luxury-goods retailers starved of customers; and the tourism sector, where cruise ships, in particular, have become hotbeds of contagion.
But there has been relatively little reflection on what the new climate of uncertainty means for the global economy more generally. In thinking through the long-term consequences of the COVID-19 crisis, individuals, companies, and perhaps even governments will try to shield themselves through complex contingent contracts. It is easy to imagine new financial products being structured to pay out to automobile producers in the event that the virus reaches a certain level of lethality. The demand for novel contracts may even fuel new bubbles, as the money-making possibilities multiply.
History offers intriguing precedents for what might come next. Consider the famous financial crisis following the “tulip mania” in the Netherlands between 1635 and 1637. This episode is particularly well known because its lessons were popularized by the Scottish journalist Charles Mackay in his 1841 book, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds. To Mackay, the tulip crisis seemed to prefigure the speculative surges of capital into railroads and other industrial developments in North and South America during his own time. Throughout the book, he milks the episode for all its humor, recounting stories of ignorant sailors literally swallowing a fortune by mistaking tulip bulbs for onions.
But as the cultural historian Anne Goldgar reminds us, Mackay neglected to mention that the mania coincided with the exceptionally high mortality of the plague, which was spread by the armies fighting the Thirty Years’ War. The plague hit the Netherlands in 1635, and reached its peak in the city of Haarlem between August and November 1636, which is precisely when the tulip mania took off.
The rush of speculative capital into flower bulbs was fueled by a wave of cash windfalls accruing to the surprised heirs of plague victims. Tulips served as a kind of futures market, because the bulbs were traded during the winter when no one could examine the character of the flower. They also became the subject of complex contracts, such as one that stipulated a price to be paid if the owner’s children were still alive in the spring (otherwise, the bulbs would be transferred gratis).
The financial speculation in this wild, apocalyptic environment was born of uncertainty. But it has often been reinterpreted as evidence of craven materialism, with the bust representing an indictment of godless luxuries and foreign exotica. Tulips, after all, originally came from the alien culture of Ottoman Turkey.
Like today, early modern Europe’s plague epidemics spawned vast conspiracy theories. The less obvious the origin of the disease, the more likely it was to be attributed to some malign influence. Stories circulated about sinister hooded figures going door to door “anointing” surfaces with contagious substances. Outsiders – foreign merchants and soldiers – as well as the marginalized poor were fingered as the culprits.
Again, a nineteenth-century source offers powerful lessons for today. In Alessandro Manzoni’s 1827 novel, The Betrothed (I Promessi Sposi), the plot reaches its high point during the plague outbreak in Milan in the 1630s, which was considered a scourge introduced by foreigners, not least the foreign Spanish Habsburg monarchy that ruled Milan. The novel became a potent catalyst for Italian nationalism during the Risorgimento.
Not surprisingly, the COVID-19 epidemic is already playing into today’s nationalist narratives. To some Americans, the Chinese origins of the disease will simply reaffirm the belief that China poses a danger to the world and cannot be trusted to behave responsibly. At the same time, many Chinese will likely see some US measures to combat the virus as being racially motivated and intended to block China’s rise. Conspiracy theories about the US Central Intelligence Agency creating the virus are already circulating. In a world flooded with disinformation, COVID-19 promises to bring even more.
As the Dutch historian Johan Huizinga showed, the period following the Black Death in Europe turned out to be the “waning of the Middle Ages.” For him, the real story was not just the economic aftereffects of a pandemic, but the mysticism, irrationalism, and xenophobia that eventually brought an end to a universalist culture. Likewise, it is entirely possible that COVID-19 will precipitate the “waning of globalization.”
A COVID-19 Emergency Response Plan
The rapid escalation of the COVID-19 crisis may be setting the stage for a global recession. Economic policymakers have no time to waste in preparing a response – preferably one that makes full use of low and falling bond yields, below-target inflation, and the lessons of the last recession.
WILSON, WYOMING – The COVID-19 epidemic is accelerating, and as the new coronavirus approaches pandemic status, it is increasingly likely that the economic impact will be severe. Alongside intensifying public-health responses, governments must step in to mitigate the virus’s impact on growth, employment, and living standards.
There are three reasons to worry that COVID-19 will hit the global economy hard. First, regional and national travel restrictions will curb the flow of goods and services across borders and within countries. This is already happening in China, where growth forecasts for the first half of 2020 are being slashed. As the world’s second-largest economy and home to much of the global supply chain, China’s slowdown is already being reflected in large US and European companies’ (reduced) earnings forecasts.
Second, increased uncertainty will translate into reduced “big ticket” spending by households and small businesses. Holidays and business travel are already being reconsidered, as evidenced by the 200,000-plus airline cancellations so far this year. Auto and home purchases will likely follow suit. Before long, businesses will put off investment in structures, plant, and equipment, creating major negative ripple effects across the world’s economies.
Third, sharp declines in global equity markets, if sustained, will harm the real economy. Plunging markets stoke fear and uncertainty, reduce household wealth, and therefore erode consumer spending. They also raise the cost of capital for firms, which means less hiring and reduced capital expenditures. In short, COVID-19 and the responses to it could easily lead to a global spending shortfall, which would soon be followed by mounting job losses, potentially pushing real economies everywhere to the brink of recession.
But governments have tools for fighting recession. Low inflation (below central-bank targets in most cases) means that monetary policy can be eased without raising concerns of overheating. And ultra-low bond yields will allow governments in developed and many emerging economies to borrow and spend on stimulus measures. In any case, the policy response should be flexible and reversible, in the event that the epidemic and its economic impact are less severe than feared.
So, what specifically should governments do? First, they must implement measures to stabilize commercial activity without delay. Corporate tax cuts, infrastructure spending, and other measures with delayed effects are ill-advised. Tax holidays or reductions of payroll, sales, and value-added taxes have more to recommend them. The point is to boost disposable purchasing power within days – not months – by putting more money in the hands of middle- and low-income households, who tend to spend a greater fraction of their incomes. Wisely, that is what the United States, the United Kingdom, and many other countries did during the 2008-09 “Great Recession” (though many economists, including me, would have preferred an even bigger stimulus package).
Second, even if the effectiveness of monetary policy has been diminished after a decade of low and even negative interest rates, the major central banks should announce fresh rate cuts and liquidity provisions. When fear strikes, the demand for money can spike. Central banks should make clear far in advance that they will meet or even exceed that demand. As former European Central Bank President Mario Draghi demonstrated at the height of the eurozone crisis, a stated commitment to do “whatever it takes” may well be the most powerful weapon in monetary policymakers’ arsenal.
Third, governments everywhere should adopt legislation to increase and extend unemployment benefits, at least temporarily. As with cutting regressive taxes, increased unemployment benefits will put cash in the hands of those most likely to spend it in the near term, providing a necessary offset to weaker spending elsewhere in the economy.
Moreover, in the case of the US, the federal government should authorize temporary block grants to states facing hard budget constraints, in order to avert near-term deficits that would require counterproductive tax increases or spending cuts. Again, this approach proved effective during the last recession, when federal transfers to states offset about one-third of state governments’ budget shortfalls.
Finally, all governments should immediately boost spending on medical services, which must be made available to those most at risk from the coronavirus: the elderly, the poor, and the marginalized – both in cities and remote, rural communities. Policymakers should immediately authorize spending for fleets of mobile medical units to reach those who cannot otherwise access proper care.
Yes, some commentators will fret about the fiscal consequences of tax cuts and increased government spending. But they will be wrong to do so. Low and falling bond yields mean that most advanced and large emerging economies have extraordinary leeway to borrow at little cost. Central banks are ready to hoover up any government debt that financial markets cannot absorb. Besides, emergency measures will be temporary, and subject to reversal after the crisis passes.
Deficits are tomorrow’s problem. The challenge today is to fight COVID-19 and its harmful economic effects. Not acting forcefully and immediately would be akin to letting the patient die just to teach him a lesson. Partisanship and zero-sum politics are no excuse for governments to shirk their fundamental obligations to citizens. Indeed, if any good can come from this crisis, it is that politicians might finally find a way to set aside their differences and do their job.
Coronavirus and the Global Economy
If developing countries’ health systems come under pressure, the US, Europe, and others should step up quickly with technical assistance and essential supplies. Unfortunately, there has so far been a worrying lack of leadership especially by US President Donald Trump's administration.
WASHINGTON, DC – The emergence of COVID-19, a new coronavirus, is a tragic public-health emergency. The disease, one hopes, will be brought under control quickly, but the International Monetary Fund is already warning that economic growth in China may slow. As we watch the situation unfold, three broader risks to the global economy are also becoming more apparent.
The first risk is obviously in China itself. While the precise origins of the disease remain unclear, it is hard to take a definite view on whether outbreaks of this kind could be avoided – for example, by better control over hygiene in food markets. But it is painfully obvious that a lack of transparency in China has contributed to fear and even signs of panic around the world.
As financial markets demonstrated in 2007-2008, when the precise incidence of big risks is not well understood, people tend to assume the worst. Rapidly falling asset prices may not contain much information – except that there is not much information to be had.
What is the exact mortality rate associated with COVID-19? Why does mortality, supposedly, vary significantly across localities? What explains the ease with which this virus seems, sometimes, to travel great distances? What are the precise effects of quarantining people in a building, a makeshift hospital, or a city?
The Chinese authorities surely do not have all the answers at this point, but their inclination to suppress data and interpretation is tremendously unhelpful.
Second, the lack of American leadership is more painfully apparent every day. The United States has the strongest medical-health system in the world, with capacity for research and development (government and private) that is second to none. Yet President Donald Trump’s administration seems to be concerned primarily with playing down the risks, while keeping the virus out of the US – a nearly impossible task.
The private sector is working hard on a vaccine, and this is commendable. Unfortunately, over a longer period of time, the lack of a consistent market for such vaccines has undermined investment in this sector. By creating the world’s largest market for many drugs, the US effectively supports research across a wide range of ailments – but only those for which there is large and steady demand in the US.
Even the most fervent believer in Trump’s “America First” must be willing to concede that it is not in America’s interest for the rest of the world to become sick. These are US allies, friends, and customers. Also, like it or not, few diseases will stop at America’s borders. Indeed, the US Centers for Disease Control and Prevention (CDC) has said that the question is not if, but rather when, COVID-19 spreads domestically.
The third risk is in emerging markets and developing countries. Poorer countries are ill-equipped to deal with this kind of disease, as seen in African countries’ refusal to airlift their citizens from China.
The news that the coronavirus has reached Italy has shaken world financial markets, but Italy is a relatively well-organized and rich country. A vibrant democracy ensures that people (inside and outside the country) will quickly understand if containment and treatment measures are working.
We should be much more concerned about other countries, where nutrition is worse, housing standards are weak, and disease transmission can occur much more readily. If these countries’ health systems come under pressure, the US, Europe, and others should step up quickly with technical assistance and essential supplies. But here, too, there is so far a worrying lack of leadership.
It seems unlikely that this disease will prove to be as deadly as some of those that our ancestors experienced. Medical practice and public health have advanced a great deal. The CDC is an outstanding organization, and the World Health Organization has a strong track record when the chips are down. Private-sector groups of dedicated doctors and nurses have performed extraordinarily well under the most difficult circumstances, such as dealing with Ebola, when they are given a chance. We are fortunate to live in an age that has so many heroic people.
Still, this coronavirus is a warning. Societies neglect access to health-care systems and reduce investments in R&D at great peril. Diseases are always evolving, and we must continually increase our capacity to understand and fight newly emerging threats.
The best way forward is by strengthening science, training more scientists, and building more labs. Countries that are able to do this – like the US – should share ideas and knowledge as widely as possible.
Investing more in science is an appealing economic proposition. Given very high rates of social return, basic research across a wide range of activities more than pays for itself.
But this is not about the economics. More likely than not, one day a scientist will save your life or the life of a loved one, because his or her previous work produced a drug, treatment, or just an idea that made a critical difference. We should invest in scientists to save ourselves and our neighbors. And we must remember that we have neighbors all over our deeply interconnected world.