The Week in Washington — Pandemic Hammers U.S. and Global Economy 

by Andrew C. Adair, J.D. 

Pandemic Batters the American People and U.S. Economy 

As the epicenter of the Covid-19 pandemic shifts from Europe toward the United States, U.S. officials now say that the number of American fatalities could reach 240,000, even with social-distancing measures. Despite feverish research, treatment options remain limited for now, and a vaccine is at least 18 months away. The New York area is by far the worst off, with the peak at least another week away. Other parts of the country such as Washington, D.C., Los Angeles, Chicago, Detroit, Miami, and New Orleans will replace New York as the new hotspots in the coming weeks.     

The pandemic is, of course, now fully battering the American and the global economy. The Wall Street Journal reported yesterday that at least one-fourth of the U.S. economy is now idle. The stunning jobless claims in the United States (10 million within the last 2 weeks; likely another 5 million this week) reflect only the start of an economic slowdown that could easily eclipse the financial crisis of 2008-09 and more resemble the Great Depression of the 1930s. Both the World Bank and IMF now predict a major global recession; the managing director of the IMF said the current crisis is “way worse” than the financial crisis.  

The benefit of hindsight shows the extent to which many Western economists underestimated the pandemic’s impact. As recently as March 22, Fitch Ratings projected that the global economy would avoid a recession in 2020 (it later revised this prediction). The OECD issued a similar prognosis four weeks ago (projecting 1.5 percent global growth for 2020). Deutsche Bank’s chief economist in late February predicted a total global death toll of 30,000 (more than double that number have succumbed to Covid-19 already).   

Awkward Transatlantic and Global Cooperation 

The U.S. Chamber of Commerce is urging that the United States and Europe exercise collective leadership as “the leading drivers in the global response.” Meanwhile, the rifts between U.S. and E.U. are arguably widening, even as the pandemic rages. The E.U. has now announced its workaround to the WTO appellate body, along with 15 other nations. INSTEX performed its first transaction last week, under which Germany, France, and the U.K. shipped medical supplies to Iran. INSTEX will likely remain limited to humanitarian aid, but nevertheless remains a point of contention between Europe and Washington. The White House has also released a new national strategy on 5G, and established a new panel to review participation of foreign actors in the nation’s telecommunications systems. The United Kingdom has implemented its digital services tax, as of April 1. (One small silver lining: Congress’s $2.2 trillion Covid-19 rescue known as the CARES Act contains a lifeline for Boeing worth up to $17 billion, which could help smooth settlement discussions between the U.S. and E.U. on tariffs arising out of aircraft subsidies.) 

Multilaterial bodies have also engaging in a series of extraordinary multilateral summits over the past weeks in order to forge international cooperation. The G7 issued a Leaders’ statement pledging to do “whatever is necessary” to fight the pandemic, and to “address disturbances to international supply chains.” However, French President Macron urged the United States (currently the president of the G7) to initiate the call. Moreover, the G7 foreign ministers failed to reach consensus on a statement, as the U.S. Secretary of State Mike Pompeo refused to sign a statement unless it referred to Covid-19 as the “Wuhan Virus.” 

G20 leaders also met by phone, pledging to invest at least $5 trillion into the global economy and to “minimize disruption to trade and global supply chains,” although they did not comment on freezing sanctions (as requested by Vladimir Putin). The Trump Administration has continued to increase sanctions on Iran and Venezuela during the outbreak. Members of Congress in both parties are even asking the E.U. to impose new sanctions on Russian actors, in anticipation of interference in the November election.  

The G20 trade ministers have also issued a statement agreeing that emergency measures should be temporary, and not create unnecessary barriers to trade. Smaller groups of nations (e.g. one including Australia and Canada) have issued pledges to maintain open trade. Meanwhile, at least 60 governments have also announced export restrictions on medical supplies since January 1. The European Union in mid-March month imposed a six-week initial restriction, for protective equipment. Phil Hogan defended these restrictions to the G20 as an interim, emergency measure. The U.S. had not imposed any export restrictions on medical supplies until last week, when the White House issued an order allocating certain personal protective equipment (PPE), including N95 respirators, to domestic use. This occurred after the Administration learned that the American manufacturer 3M exports respirators from the United States to buyers in Canada and Latin America. Relatedly, the German manufacturer Dräger will also begin making masks in the United States later this year.   

Despite the Crisis, a Case-by-Case Approach on Tariffs 

The Covid-19 crisis has scrambled demand levels for many products and with it global supply chains — particularly for medical supplies. In the United States, imports of medical supplies have dropped, while shortages of ventilators and PPE have spiked in American hospitals. Meanwhile, American manufacturers also exported large volumes of medical supplies during the first quarter of 2020, exacerbating the current shortages that New York and other areas are now experiencing. 

To respond to the supply crunch, many are urging the Trump Administration to drop tariffs that it has put in place over the last two years — at a minimum, on supplies needed for the pandemic. The U.S. Chamber of Commerce, for example, is urging the Administration to “eliminate all tariffs on medicines and medical equipment.” Many in Congress are also calling for tariff-related relief — for example on March 26 (on all imports during the crisis), and on April 2 (on medical supplies during the crisis). Senator Charles Grassley (R-Iowa), the most prominent Senator for trade policy, is also pushing the Trump Administration for similar forms of relief and is urging Trump not to impose any new tariffs during the pandemic. It is notable that Congress declined to force the Administration to accept such tariff relief in the CARES Act; it remains worth watching whether Congress insists on action as it prepares a “Phase 4 bill” this month. Congress could become more agitated, for example, if President Trump imposes yet even more tariffs, e.g. on crude oil.    

The Trump Administration, on the other hand, appears committed to using a piecemeal approach, granting temporary exclusions on a case-by-case basis rather than blanket suspensions. For example, on the China-related tariffs, the Administration has granted some 200 exclusion requests based on medical necessity. These include an array of PPE such as masks, gloves, and gowns. The Administration has also denied requests for relief, however, including from the makers of Purell hand sanitizer. In addition, the Administration has recently reopened the exclusions process for Lists 1 and 2 of the China-related tariffs, specifically in light of the pandemic. This is notable, considering that Lists 1 and 2 (accounting for roughly $50 billion in annual imports) are considered a key element of the White House’s China strategy. By way of comparison, both the E.U. and the U.K. have waived import tariffs on medical goods.

A robust internal debate within the Trump Administration has also unfolded about whether to temporarily suspend collection of all import tariffs for a certain period. The White House is now expected to move forward on such an order, but only for “most favored nation” tariffs rather than to the tariffs associated with Trump’s trade war. This means that the reprieve would not apply to the new tariffs applied over the last 24 months (including those arising out of the Boeing-Airbus dispute).   

In order to meet the desperate need for ventilators, the Trump Administration has also invoked, for the first time, an emergency war power (the Defense Production Act) to order American automakers General Motors and Ford to manufacture ventilators. G.M. is cooperating with Ventec, building in Indiana; Ford is acting with GE Healthcare to build capacity to manufacture 30,000 ventilators per month. Notably, China has also donated 1,000 ventilators to the United States in a highly-publicized gesture.   

Depending on how long President Trump remains in office, one could ultimately foresee new rounds of national-security tariffs on medical products. Despite China’s momentary generosity during the crisis, China skepticism in Washington will only continue to increase; Congress in its rescue bill ordered a report on “the security of the United States medical product supply chain” — an implied reference to China. Sen. Tom Cotton (R-Arkansas) and Rep. Mike Gallagher (R-Wisconsin) have also now introduced a bill that would prohibit government facilities from purchasing drugs with Chinese ingredients.