Newsletter: China Is Catching Up
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China is closing the economic gap with the U.S., another round of Covid lockdowns would be too costly, more U.S. workers are testing positive for drugs, and Canada scores a win on lumber. Jeff Sparshott here to take you through the latest economic news.
Going the Distance
China’s economy is bouncing back—and gaining ground on the U.S. Across China, restaurants and gyms are busy again. Subway cars and airport departure lounges are packed. Children are preparing to return to classrooms with few of the restrictions U.S. officials say will be hallmarks of post-coronavirus life. With the coronavirus smothered for now, thanks to draconian control measures, J.P. Morgan recently boosted its 2020 China growth forecast to 2.5% from 1.3% in April. Economists at the World Bank and elsewhere have also upgraded their forecasts for China, the only major economy expected to grow this year, Jonathan Cheng reports.
That bounceback should help the world’s No. 2 economy move faster in catching up with the U.S., which could shrink by as much as 8.0% in 2020. China’s inflation-adjusted economic output will likely hit $11.9 trillion this year, said Nicholas Lardy, an economist and China expert at the Peterson Institute for International Economics in Washington. That is roughly 70% of the U.S.’s expected output—a seven-percentage-point increase from last year, and the largest advance China has made on the U.S. in a single year.
WHAT TO WATCH TODAY
The S&P/Case-Shiller home-price index for June is out at 9 a.m. ET.
The Conference Board’s consumer confidence index for August is expected to tick down to 92.5 from 92.6 a month earlier. (10 a.m. ET)
U.S. new-home sales for July are expected to rise to an annual pace of 787,000 from 776,000 a month earlier. (10 a.m. ET)
The Richmond Fed’s manufacturing survey for August is expected to fall to 7 from 10 a month earlier. (10 a.m. ET)
Richmond Fed President Thomas Barkin speaks to the York County Regional Chamber of Commerce at 11:30 a.m. ET, and San Francisco Fed President Mary Daly participates in a Rotary Club of Oakland event at 3:25 p.m. ET.
Targeted Restrictions, Yes. Crippling Lockdowns, No.
Covid-19 lockdowns led to a deep recession. Five months later, the evidence suggests broad shutdown orders were an overly blunt and economically costly tool. The evidence also points to alternative strategies that could slow the spread of the epidemic at much less cost. James Stock, a Harvard University economist, Harvard epidemiologist Michael Mina and others designed a “smart” reopening plan based on contact frequency and vulnerability of five demographic groups and 66 economic sectors. It assumes most businesses reopen using industry guidelines on physical distancing, hygiene and working from home; schools reopen; masks are required; and churches, indoor sports venues and bars stay closed. They estimated in June that this would result in 335,000 fewer U.S. deaths by the end of this year than if all restrictions were immediately lifted. But they say the plan also would leave economic output 10% higher than if a second round of lockdowns were imposed, Greg Ip writes.
Models of Support
In the Covid-19 recession, unemployment has risen far more in the U.S. than in Europe. But this isn’t the result of a deeper recession or less-aggressive fiscal response in the U.S. Rather, it reflects different approaches to the labor market. European governments have paid companies tens of billions of dollars to keep idled workers on payrolls. In the U.S., meanwhile, most support went directly to the unemployed, Tom Fairless and David Harrison report.
There are advantages and risks to both approaches. European companies retain valuable skills and relationships, enabling them to quickly fire up as the economy recovers. Workers get paychecks and job security, which should support consumer spending. But some economists worry Europe’s wage subsidies could delay adaptation to longer-term changes. Millions of furloughed employees might ultimately be fired anyway.
Because I Got High
The number of working Americans testing positive for drugs climbed last year, indicating employee drug use was on the rise just as the coronavirus pandemic created new stresses. Overall, the percentage of U.S. workers who tested positive for drugs in urine in 2019 rose to 4.5%, the highest level in 15 years, according to Quest Diagnostics, one of the largest drug-testing laboratories in the U.S. The greatest jump has been in workers testing positive for marijuana, Anne Steele reports.
U.S. and Chinese officials said they were committed to carrying out the phase-one trade accord signed in January. A videoconference late Monday brought together U.S. Trade Rep. Robert Lighthizer, Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He for a formal review of the deal. Trade tensions between the U.S. and China buffeted markets last year before the world’s two largest economies struck the phase-one deal. As relations soured over Covid-19, technology and the national-security law imposed by China on Hong Kong, investors worried that new frictions to trade and commerce would hurt the global economy, Bob Davis and Lingling Wei report.
The World Trade Organization sided with Canada in the latest flare-up in a decades-old fight with the U.S. over lumber imports, ruling the Trump administration incorrectly claimed in 2017 that its northern neighbor was improperly subsidizing production. The setback for the U.S. emerges at a time of heightened trade tension between Washington and Ottawa: This month, the U.S. reimposed a 10% tariff on some aluminum produced in Canada, Paul Vieira reports.
At least one company is cheering renewed aluminum tariffs on Canada: Chicago-based Century Aluminum lobbied for the restart of duties as a way to boost slumping U.S. aluminum prices. More than a dozen other aluminum companies, including Alcoa, Novelis and Arconic, urged the Trump administration to instead pressure China to stop what they say are unfair government subsidies that encourage excess aluminum production and drag down prices, Bob Tita reports.
WHAT ELSE WE’RE READING
The coronavirus pandemic is not impacting small businesses equally. “About one-in-five (21%) of small business owners report they will have to close their doors if current economic conditions do not improve over the next six months. Another 19% of owners anticipate they will be able to operate no longer than 7-12 months under current economic conditions. Over half (61%) are better situated and do not anticipate any near-term problems,” the National Federation of Independent Business found in a survey of its members.
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