Waging War on COVID-19

HONG KONG – The world is at war. The enemy is resilient, ruthless, and unpredictable, with no regard for race, nationality, ideology, or wealth. Already, it has killed more than 26,000 people and infected over 560,000, from ordinary workers to the United Kingdom’s prime minister and crown prince. It has halted economies, overwhelmed health-care systems, and forced hundreds of millions to remain confined to their homes. And it will not back down.

Unlike a conventional war, the COVID-19 pandemic is not a choice or a competition. No ceasefire can be reached, no treaty signed. And, with no known vaccine or effective cure, the world has few weapons with which to fight it. The only way to restore peace – or, at the very least, stave off systemic failure until a more effective weapon is developed – is with a whole-of-government, whole-of-society, whole-of-world approach.

The most urgent imperative is to ensure that the frontline is not overwhelmed. As an Imperial College study showed, the best way to do that is through early and resolute social distancing: keeping people away from one another in order to slow down transmission. This replaces a steep, exponential “pandemic peaking curve” of infection with a “flattened” curve, in which severe cases do not exceed the health-care system’s capacity.

That is not what happened in Wuhan, China, where the virus first emerged. With authorities unaware of COVID-19’s pathology or potential, they had to play catch-up – a delay that probably increased total fatalities. Nor is it what happened in Italy, where the health system quickly became overwhelmed, and the number of fatalities now exceeds twice that of China.

The lesson is clear: governments must urgently implement lockdown measures. China and Italy have both done so (though China’s more draconian measures – together with other actions, such as building designated COVID-19 hospitals, and demographic factors – have proved more effective.)

Yet, while such action is vital to protect public health, it puts severe stress on the economy. The longer the lockdown persists, the greater the likelihood of large-scale unemployment, collapsing demand, and recession, especially given the prevalence of longstanding global asset bubbles supported by zero or negative interest rates.

The “just-in-time” global economy cannot survive more than two months of lockdown before its “Minsky moment” – when investors start panic selling, a boom becomes a crash, and a bubble goes bust. Already, Western stock markets have plummeted. In the United States, the Dow Jones Industrial Average, even with its recent uptick, is on track for its worst month since the Great Depression.

Though China’s stock market has so far endured the lockdown without a sharp decline, largely because it had already suffered from the trade war with the US, vast amounts of wealth have been destroyed. During the first two months of 2020, China’s industrial value-added for large and medium-size enterprises declined by 13.5% year on year; urban investment on fixed assets plummeted by 24.5%; and total retail sales dropped 20.5%. In December 2019, by contrast, all three had grown – by 6.9%, 5.4%, and 8%, respectively.

The lesson is clear: While lockdowns are essential, so is strong action to revive production and consumption. In the short term, this can mean active monetary and fiscal policy. But such measures have only limited potential. Even the US Federal Reserve’s rapid move to cut interest rates and promise to pump trillions of dollars failed to stem the stock-market decline.

Fiscal measures could have a stronger impact. Indeed, it was the congressional approval of an unprecedented $2 trillion economic-stabilization package – which includes direct payments to taxpayers, unemployment benefits, and a $500 billion fund to assist businesses – that halted the US stock market’s decline. But even that can do only so much in the event of a protracted lockdown.

Most workers and businesses hold limited cash reserves. A recent Brookings study showed that 44% of Americans are low-wage hourly workers, and a 2019 Fed survey suggested that 40% of American adults wouldn’t be able to cover an unexpected $400 expense with cash, savings, or a credit-card charge that could be repaid quickly.

In the European Union, 22.4% of the population – 112.8 million people – lived in households at risk of poverty or social exclusion in 2017. These people cannot afford to have their incomes interrupted for long. And, because many of them perform jobs that cannot be done remotely, a protracted lockdown would do just that.

That is all the more likely, because many of their employers would not be able to continue paying them. JP Morgan estimates that the median cash buffer is 16 days for restaurants, 19 days for retail stores, 27 days for all small business, 33 days for high-tech services, and 47 days for real-estate companies.

The International Labor Organization forecasts anywhere from 5.3 million to 24.7 million lost jobs due to the pandemic. (The 2008 crisis increased global unemployment by 22 million.) In the US alone, 3.3 million people filed for unemployment benefits last week, one third more than the Goldman Sachs estimate of 2.25 million.

Yet there is little reason to expect the pandemic to come to a quick and decisive end. According to the Imperial College, even if the peak is reached soon, reverse waves of smaller outbreaks could require repeated lockdowns, until an effective vaccine is developed, tested, manufactured, and distributed widely – a process that will take a minimum of 12-18 months.

The world has only one hope of offsetting the consequences of periodic economic shutdowns during this period: cooperation. That includes both coordinated economic policies and the free exchange of knowledge and data.

Like any war, the fight against COVID-19 will disproportionately hurt those who were already vulnerable. Unless countries can move past destructive nationalism and petty competition – such as US President Donald Trump’s insistence on calling COVID-19 the “Chinese virus” – millions will suffer. The resulting anger could push the world toward conventional conflict, causing even more destruction and suffering.

Pandemics, like wars, are not about who is right, but who is left. We need a global alliance for victory.

Andrew Sheng is Distinguished Fellow of the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance. Xiao Geng, President of the Hong Kong Institution for International Finance, is a professor and Director of the Research Institute of Maritime Silk-Road at Peking University HSBC Business School.