Question

In: Economics

As we emerge from COVID-19’s lockdowns, there will be many new features to the landscapes of...

As we emerge from COVID-19’s lockdowns, there will be many new features to the landscapes of our lives. The most significant will be the shifting economic path from the capitalism of interdependent free trade to the mercantilism of independent economic nationalism.

To those who study the future, the COVID-19 pandemic is a singularity — an event, usually unanticipated, that fundamentally upends the way we live. In other words, it is a major paradigm shift.

One classic example is the mass production of the automobile early in the last century, shifting transportation from organic sources (horses) to mechanical alternatives (cars). A more recent case is the development of the Information Superhighway in the 1980s that ushered in the world of the personal computer in which we now live.

The COVID-19 pandemic originated late last fall in Wuhan, China. Wuhan is a city in Central China with 10 million people and a major transportation hub for domestic rail travel and international air flights. It was also the host of an international athletic meet and a Chinese New Year celebration that attracted tens of thousands of tourists who then unwittingly spread the deadly new virus rapidly across the globe.

For whatever reasons, both the Chinese communist government and the United Nations’ World Health Organization failed to alert the world in sufficient time to stop this spread. As a result, it has now reached literally every country in the world.

At this writing, there are more than 3 million COVID-19 cases and more than 200,000 deaths worldwide. The United States is the world’s leader with in excess of 1 million cases and about 60,000 deaths.

To break the spread of this pandemic, stay-at-home orders have been imposed for individuals and shutdowns for most nonessential businesses (variously defined) for the past six to eight weeks. As we emerge from the wreckage, what we behold are eerily invisible societies and ruined economies.

In the United States, there are nearly 30 million unemployed and a contraction of the economy not seen since the Great Depression of the 1930s.

From these horrendous statistics, there is an automatic compulsion to assign blame. Since President Trump is at the national helm, it is easy to blame him, and his sub-par performance at the daily White House press conferences has not helped. If he was a little slow to recognize the threat of COVID-19, Democrats such as Nancy Pelosi, Charles Schumer and Andrew Cuomo were no faster.

If blame is to be pinned on anyone, it must be on the communist government of China, which withheld information on the pandemic for far too long. And, bluntly, the World Health Organization was complicit in this silence.

In truth, we have much to be proud of in the American response. Under the capable leadership of Vice President Mike Pence, the COVID-19 Task Force has brought before the American public the reassuring medical expertise of Drs. Anthony Fauci and Deborah Birx. For all the bitter partisanship to our politics, a welcome bipartisanship between Republicans and Democrats in both houses of Congress, together with the White House, has enacted several pieces of legislation that has brought some $3 trillion of financial relief to individuals and businesses.

Further, government and private industry are cooperating to achieve massive production shifts — like General Motors’ switch from making cars to manufacturing ventilators in just weeks — at a level of coordination not seen since World War II.

In confronting the COVID-19 singularity, three new features immediately come to mind. One is a migration from crowded, vulnerable cities to the safety of small-town America. Another is a dramatic increase in the reliance on the internet for employment, retail spending, education and even health care, and away from the brick-and-mortar settings of person-to-person interactions.

The most far-reaching of this paradigm shift, however, will be the rise of mercantilism at the expense of free trade liberalism. Since much of our pre-COVID-19 prosperity came from this interdependence of resources, labor and capital to the least costly place of production, this may seem strange.

The beneficiary of this “free” trade was the global consumer who enjoyed the reasonable prices that came from cheap imports. The flaw to this “prosperous” system was that most of the global supply chains, and especially that of medical supplies and equipment, led to China. Indeed, by 2020, fully half of all global manufacturing is “made in China.” The flaw lies in the loss of independence, both economic and political, to the winner of such interdependence.

The father of mercantilism, Friedrich List (1789-1846), contended that an industrial economy was the bedrock of national power, and that the goal of any economy was to achieve trade surpluses to preserve the nation’s economic independence and political sovereignty. Indeed, such mercantilism has been the guiding light to China’s massive growth and trade surpluses all over the world. Hopefully, rising from the invisible devastation of COVID-19 will be a visible counteracting forest of signs saying “made in the USA.”

  • Summarize the article
  • How do this relate to the 16th century theory of mercantilism?

Solutions

Expert Solution

Summary

Coronavirus has had huge impact on economic growth due to lockdown and shutdowns and social welfare losses.

The economic growth remains subdued as Aggregate demand and consumption both fall simultaneously also leading to fall in prices and inflation.

Investment is pumped out due to falling interest rate regime and lower economic outlook of companies.

Government spending is ramped up due to an expansionary fiscal policy by reducing taxes and spending. Also net exports go negative as imports surge due to supply shocks.

Negative growth in GDP causes high unemployment and lower inflation based on Philips curve movement.

Thus in short run, aggregate supply is high but aggregate demand is low and real GDP falls. However in long run the economy stabilises.

The US has been great in fiscal stimulus of 484 billion dollars and US Fed unlimited bonds buying programmes worth 2 trillion dollars with rate cuts, CRR and SLR and liquidity coverage ratio cuts. Triggering automotic stabilizers and combined above policy will help alleviates financial distress and grow economic growth throufh higher consumption and disposable incomes.

The supplyvof credit availability rises causing its demand to go down considerably.

Sijce the interest rates are cut, the banks shall transmit easier loans availability at lower rates and thus loan markets will grow enormously.

However the cases has risen to 1 million approximately and states have been relaxed and thus caused havoc.

Mercantilism 16th century

The article shows how 16th century Mercantilism focussed on being hyperlocal in creation of manufacturing hub that countries havevtrade surpluses and thus interdependence on other nations is extremely less amd thus nations become local rather than global and thus independent enough to revive economic growth and real GDP.

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