G’day, and welcome to the 10th edition of Mundo.
To celebrate the 10th edition, I’ve got a new newsletter format, and I’ve launched my website, complete with all earlier editions of Mundo!
In this edition I reflect and expand on some of the economic and political consequences of the coronavirus crisis that I’ve analysed in previous editions of Mundo, or written about elsewhere.
The Economic Consequences I’m happy to share that yesterday Oxford Analytica published a briefing I wrote on the United States’ massive $2 trillion stimulus package passed late last month, known as the CARES Act. I write that while roughly $1 trillion was apportioned for relief to individuals and small businesses, it’s larger businesses that will see the greatest benefits. This is because they have greater expertise in applying for federal funding, more influence in Washington, and deeper resiliency to withstand this incredible economic shock. The Federal Reserve’s necessary steps taken to stabilise financial markets, and their unprecedented role as an “investor of last resort” also disproportionately benefits larger firms who can tap capital markets for funding. If you’re a subscriber to Oxford Analytica, you can read my analysis here. Since I wrote this briefing, it’s clear that this dynamic is occurring, particularly through the $450 billion “Paycheck Protection Program” (PPP). The PPP is designed to support the payroll and other expenses of U.S. small businesses. With economists projecting the actual shortfall in revenue for three months at over $1.2 trillion across the country, competition for a piece of this $450 billion was always going to be fierce. So fierce, that the program’s funding was exhausted last Thursday, less than two weeks after the program opened on April 3. A further $310 billion is expected to be approved by Congress this week – still less than the expected small business shortfall over the coming months. A political backlash has begun against a multitude of larger firms that exploited exceptions and loopholes to secure PPP funding. The Financial Times identified over 80 publicly listed companies who received a total of $330 million in funding. My point here is not that they’re not also financially distressed, but that these larger firms weren’t the intention of this particular program. These firms are following their own self-interests, within the bounds of the legislation. While rapid passage of the CARES Act was needed to arrest a freefalling economy, it reminds us that just as in the 2008 financial crisis, there are unintended consequences to hurried economic policy. This is not only the case for the United States of course, but globally. Some of these consequences will become quickly apparent, while others will show themselves over the coming years. The election of Donald Trump in 2016 had its seeds in the uneven economic recovery from the 2008 financial crisis, which was rooted in unforeseen consequences of economic policies at the time.
The Political Consequences In the coming months, I expect to see even stronger forms of economic nationalism from the Trump White House, for reasons I detailed in edition nine of Mundo. Unfortunately since edition nine, President Trump has only raised my concerns.
On April 14, he announced the suspension of funding to the World Health Organisation, in an effort to deflect his own multiple failings in addressing the pandemic, while using the agency as another instance to spout anti-China rhetoric to his political base. And overnight, he tweeted plans to sign an executive order to “temporarily suspend immigration to the United States”, citing the need to protect American jobs for its own citizens. Remember this is Trump’s style – to make a broad announcement that enrages his opponents and invigorates his supporters. Trump used this successfully throughout his previous campaign and time in office, and it will only escalate as we approach November’s elections. The announcement caught the administration’s legal team off guard, and will be heavily scrutinised by legal teams of backers and opponents. There’s no doubt it has also attracted substantial diplomatic and business resistance. These forces will see exceptions and caveats made. This has numerous precedents, such as Trump’s steel and aluminium tariff announcements in 2018, which provoked a diplomatic scramble by Australia and Argentina to seek an exemption. It also occurred with threatened border closures throughout Trump’s term in office. While what was eventually implemented in these cases wasn’t what Trump announced in its most shocking and offensive form, it still was, and is shocking and offensive. In each of these cases, the initial shock of Trump’s announcements are met with a degree of relief when elements are relaxed or removed. However, his policies are nonetheless embedded, in a creeping redefinition of what “normal” is. I mention a similar slide with US-China tariffs in the second edition of Mundo. Finally, I mentioned the lagging risk of public protest and rebellion against lock down measures in my article last month in the Lowy Institute’s Interpreter. As you saw in recent days, this is already beginning to happen, and it’s being egged on by Donald Trump.
Please feel free to send through your own thoughts and articles to me. Forward this along to others who might find this an interesting read. Stay calm, think of others, stay healthy. Mitch