5 Ways the Trump Administration’s Policy Failures Compounded the Coronavirus-Induced Economic Crisis
5 Ways the Trump Administration’s Policy Failures Compounded the Coronavirus-Induced Economic Crisis
The Trump administration’s failure to respond to the coronavirus pandemic and the subsequent economic fallout has exacerbated both crises in the United States.
Last week, the total coronavirus death toll in the United States surpassed 100,000—a grim milestone in a battle that the Trump administration was not adequately prepared to fight. The United States now accounts for more than a quarter of the world’s COVID-19 deaths despite only accounting for roughly 4 percent of its population. The Trump administration’s failed public health response is mirrored by its failure to respond to the economic crisis, which has led to an economic fallout that sets the United States apart from other high-income nations.
With some 37.6 million Americans filing for unemployment insurance since the beginning of March and the official unemployment rate reaching 14.7 percent in April—a level not seen since the Great Depression—the American economy is in a disastrous state, with repercussions expected for years to come. The level of economic and public health pain that Americans are now experiencing, however, was not inevitable, but rather the consequence of a series of policy failures that started well before the coronavirus outbreak. The Trump administration’s past actions weakened the United States’ ability to respond to the pandemic, and its current actions continue to exacerbate the dual public health and economic crises. Although Congress was able to pass a series of stimulus measures that have blunted the economic pain for families, this relief happened in spite of the Trump administration, not because of it.
The weakness of the Trump administration’s economic response to the coronavirus crisis—much like the failure of its public health response—can be seen in comparison with the United States’ international peers. As demonstrated by the experiences of peer nations, a rapid and coordinated public health response could have contained the pandemic more effectively and reduced the mounting economic losses. Instead, it seems as though the United States is getting the worst of both: the highest death toll of any country and what will likely be the sharpest economic contraction in American history.
Cross-country comparisons of unemployment rates illuminate how effective strong worker protections and early testing measures could have been in the United States had they been promoted by the federal government. South Korea, which largely avoided shutting down its economy due to its early and aggressive actions, recorded an unemployment rate of 3.8 percent in April—only slightly above the 3.3 percent figure recorded in February. Australia, which implemented a wage subsidy program equivalent to 3.5 percent of its gross domestic product (GDP), has seen its unemployment rate increase from 5.1 percent to 6.2 percent over the same time period. Germany, too, only saw a modest increase in its unemployment rate, as it ticked up from 5.0 percent to 5.8 percent. The United States, on the other hand, recorded an unemployment rate of 14.7 percent in April—up dramatically from the 3.5 percent figure in February.
These differences in unemployment rates have massive consequences for the number of Americans currently without employment. Had the United States unemployment rate followed the same trajectory as those of its peers, millions more Americans would still be employed. Based on the percent changes in unemployment rates, between 17 and 18 million more Americans would still have their jobs if the United States had experienced changes in unemployment rate similar to those of Australia, Germany, or South Korea. And even if the United States had followed a slightly worse trajectory, like that of Canada, at least 11 million fewer people would be unemployed. Importantly, while these figures are illustrative in nature, they actually likely understate the hypothetical difference in job loss given the large drop in the labor force as well as official measurement issues.
This column details five ways that the Trump administration has failed to address the coronavirus pandemic and subsequent economic fallout: 1) an inadequate public health response, 2) a failure to help workers, 3) years of slashing safety nets, 4) an indifference to state and local struggles, and 5) a failure to help small businesses. As the rest of the world begins to reopen safely, it is important to acknowledge that this failed inaction worsened the pandemic and recession in the United States.
1. A botched public health response
The Trump administration failed to take the coronavirus outbreak seriously. In late February, while other high-income countries were ramping up testing and developing tracing procedures, President Donald Trump stated that “the Coronavirus [was] very much under control.” It was during these critical early weeks and months that the United States should have been stockpiling protective gear for frontline workers and making testing widely available. In contrast, South Korea, a country whose first confirmed case of COVID-19 coincided with that of the United States, bought 720,000 masks for employees of businesses considered at risk of exposure to the coronavirus. When asked if the U.S. federal government would supply personal protective equipment (PPE) to states, President Trump responded that it would not act as a “shipping clerk.”
The United States also lagged significantly in testing during the critical early weeks of the outbreak. Looking at countries that were hit particularly hard by the coronavirus pandemic, it is clear that the United States ranks poorly in how quickly it scaled up testing. It took Iceland only one day to reach a daily testing rate of one test per 1,000 residents after surpassing the milestones of 1,000 total confirmed cases and at least 100 cases per million residents. It took Lithuania, Norway, and New Zealand seven, eight, and 14 days, respectively, to reach that same daily testing rate. Meanwhile, it took the United States 55 days to reach that same rate, placing it second to last among the 23 countries that met these testing threshold criteria. The Trump administration dragged its feet for nearly two months while millions of Americans were exposed to the virus.
Now, nearly three months since President Trump declared the coronavirus pandemic a national emergency, his push to reopen the economy will unfortunately prove fruitless. There is evidence suggesting that in the face of the Trump administration’s slow response to the pandemic, fear of the virus’s spread led to an economic slowdown even before stay-at-home orders were in place. As early as February, real-time economic data show a marked decline in spending on high-contact activities. From January 20 to March 13, consumer spending on transportation, entertainment and recreation, and restaurants and hotels declined by 24 percent, 24 percent, and 9 percent, respectively. Spending on groceries, on the other hand, spiked by 43 percent over the same time period, indicating a clear public acknowledgement of the possibility of a serious outbreak and economic belt-tightening.
Absent an effective public health response, the economic slowdown is likely to persist even as stay-at-home orders are lifted. Some 64 percent of Americans surveyed in late May still plan to “buy only for what [they] need” when the economy opens or the curve flattens. And when asked about which types of activities they plan to engage in, 43 percent said they would “[dine] in a restaurant” over ordering take-out or delivery; 25 percent said they would “go to the movies” over watching TV at home; and 48 percent said they would “go to the hairdresser” over buying their own grooming supplies. Only 39 percent said that they would “resume normal spending habits,” indicating that the so-called closed economy is not what is keeping consumers from spending; it is the fear of getting sick. The Trump administration’s continued lack of a plan for an aggressive testing and tracing regime is only compounding this sharp decline in consumer spending.
Indeed, even in the states that have lifted stay-at-home orders, consumer spending has not returned to pre-pandemic levels and many small businesses remain closed for business. For example, as of May 18, spending on entertainment and recreation in Georgia—which lifted its stay-at-home order on April—was down 63 percent compared with figures from January 20, when the first case of COVID-19 was detected in the United States. Meanwhile, the number of small Georgia businesses open on May 18 was down 17 percent. Similar figures for spending and small business operation levels can be found across all states, and the overall national figures are equally bleak. It is clear that consumers, not governments, will determine when states can truly reopen for business and that it will not happen until they feel safe going out again.
2. A failure to help workers retain their jobs
Another stark contrast between the United States and its international, high-income peers stems from the ways in which this administration has failed to maintain an adequate connection between workers and their employers. Since the beginning of March, the United States has seen 23 percent of its February labor force—37.6 million workers in total—apply for unemployment insurance. The enhanced unemployment insurance provisions included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act have no doubt made a huge difference for the unemployed, but there are also meaningful nonmonetary benefits that come from staying formally employed, including health care for 49 percent of Americans. Facing what could have been comparable job loss figures, the United Kingdom declared in March that the government would cover up to the lesser of 80 percent of workers’ salaries or 2,500 British pounds per month—just above the median salary—if companies agreed to keep them officially on payroll. Similar wage replacement policies have been pursued in Ireland, the Netherlands, France, and Canada.
With the decrease in aggregate demand that has accompanied the coronavirus pandemic, most employers do not have the need for as many workers as before. In this context, work-sharing programs are particularly attractive, as they allow for employees to maintain income levels through government payments while working reduced hours. Work-sharing uptake during the pandemic has unfortunately been low so far: As of May 9, just 0.6 percent of the workforce was participating in a program. The Trump administration, which has the platform and resources to encourage states to pursue work-sharing programs, chose not to. Meanwhile, the Paycheck Protection Program (PPP), which was meant to achieve outcomes similar to those of a work-sharing program, was marred by poor federal guidelines and a sloppy rollout. Importantly, strengthened unemployment benefits are helping laid-off Americans make ends meet, but even those are at risk of ending if President Trump acts on his opposition to extending them past their June 30 expiration date.
3. Three years of slashing critical safety nets
The failures of the Trump administration’s approach did not begin when the pandemic started. Each of the administration’s four budget proposals has recommended slashing funding for the Center for Disease Control (CDC). In 2018, the CDC cut its epidemic prevention activities, which help “train front-line workers in outbreak detection and work to strengthen laboratory and emergency response systems in countries where disease risks are greatest,” by 80 percent; moreover, it significantly scaled back its focus on emerging infectious diseases in several of the world’s hot spots, including China. Despite calls from the CDC, the U.S. Department of Health and Human Services (HHS), and the National Security Council to increase funding in the fiscal year 2020 budget, the Trump administration proposed a 12 percent cut to the HHS and a 10 percent cut to the CDC. Even now, amid one of the worst public health crises in recent American history, the acting director of the U.S. Office of Management and Budget has doubled down on the White House’s FY 2021 proposed budget cuts of $1.2 billion to the CDC and $35 million to the Infectious Diseases Rapid Response Reserve Fund.
Since Trump assumed the office of the presidency, he and his administration have made it clear that one of their primary policy goals consists of dismantling safety nets and laws meant to protect workers. In December 2019, just as news of the coronavirus outbreak was starting to circulate widely, the Trump administration issued a new ruling that limited states’ ability to account for local unemployment rates in determining whether and for how long someone would be able to receive benefits under the Supplemental Nutrition Assistance Program (SNAP). Due to this ruling, those who lost their jobs due to the recession caused by the coronavirus pandemic may also end up losing access to food assistance. Recent legislation temporarily suspends this rule until shortly after the public emergency declaration is lifted—a decision wholly at the discretion of the president. After that, localities will be unable to provide benefits to all those who need them, even as they continue to experience the effects of the recession.
A reduced safety net does not only mean that more families will experience pain; it also means that effective stimulus now has a harder time reaching those who need it most. Moreover, the Trump administration’s efforts to undermine the Affordable Care Act and Medicaid have resulted in fewer Americans with health care, which also blunts the stimulus’s response. Finally, a lack of worker safety guidelines and laws for essential workers has contributed to outbreaks among populations who are necessary to keep the United States running. All of these policy failures have compounded the fear and uncertainty surrounding Americans’ decision to return to work and participate fully in the economy.
4. A failure to prevent layoffs of state and local workers
In the weeks following the coronavirus outbreak, it became clear to state governments that they would have to increase spending to unanticipated levels. Yet a lack of aid from the federal government forced states and localities, who have much stricter budget requirements than the federal government, to cut payrolls for more than 1 million employees, representing a 5.2 percent drop in the total nonfederal government employment level. Without strong guidelines from the White House, states were forced to fend for themselves, often bidding against one another to provide their frontline health care workers with protective gear. This, coupled with the drop in state and local tax revenue, has led to budget crises across the country that could result in significantly deeper layoffs over the coming months. A recent survey by the National League of Cities illustrates the true scale of this problem, finding that more than 98 percent of cities with populations between 50,000 and 500,000 have reported an anticipated revenue shortfall this year.
Because local jurisdictions must balance their budgets or face heavy borrowing costs, most are forced to cut services and purge payrolls, raise taxes, or both. Local governments employ 14.5 million people, and these workers provide essential services that keep U.S. communities safe and running smoothly: The jobs and pay of 1 million hospital and health care workers, more than 5 million teachers, and millions of other workers—such as firefighters—are at risk without federal intervention. Despite states’ and localities’ appeals that the $150 billion stimulus in the CARES Act was not nearly enough to match the severity of the crisis, President Trump has been notably hostile to the idea of providing more support. He even turned the need for more state and local aid into a partisan issue, opining that allocating additional funding would be unfair to Republicans since “all the states that need help [are] run by Democrats.”
In contrast, the governments of other countries have acted swiftly in supplying cash-strapped localities with much-needed aid. The Japanese government, for example, recently announced a 117.1 trillion yen draft supplementary budget—equivalent to 21 percent of Japan’s 2019 GDP—that includes massive transfers to local governments. Similarly, the Reserve Bank of New Zealand is providing its central government’s Local Government Funding Agency with $60 billion over the next 12 months, equivalent to 43 percent of its 2018 GDP. The CARES Act and its $150 billion in funding to state and local governments was a good start, but this represents only 0.7 percent of 2019 U.S. GDP, which is not nearly enough. The Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, which passed the House with bipartisan support, would provide states, localities, territories, and tribes with a combined total of $1 trillion, or 4.7 percent of 2019 U.S. GDP, over the next two years. This level of support falls more in line with what many international peers have done. Officials in the Trump administration, however, have stated that they would prefer to wait and “see what happens” with stimulus from the CARES Act. Health care workers, firefighters, teachers, and the communities they serve unfortunately are not afforded the same luxury of time.
5. A failure to help small businesses
Even before shelter-in-place orders were commonplace across states, businesses were noticing sharp declines in consumer activity. By the beginning of April, 24 percent of small businesses had reported temporarily shutting down. By mid-May, more than 100,000 small businesses had closed permanently, representing 2 percent of the nation’s total. The Paycheck Protection Program—a provision in the CARES Act intended to help employers keep operations running despite revenue shortfalls—was plagued by reports of large, publicly traded companies receiving massive sums while small businesses were left without help. A May report released by the Small Business Administration’s inspector general found that the Trump administration’s implementation left out minority-owned, woman-owned, and rural businesses. Despite a second round of funding through the program, small businesses are still suffering immensely: Some projections estimate that small business closures could approach 7.5 million if businesses are forced to weather the economic impacts of the outbreak on their own. Though the HEROES Act would strengthen the PPP and provide other assistance to small businesses, much of the economic damage could have been avoided entirely had the Trump administration acted more quickly to contain the outbreak.
In Germany, for instance, early actions by the government allowed most factories and offices to stay open throughout the pandemic. The most impressive international comparison, however, comes from South Korea, which has managed to keep open its economy while maintaining a total COVID-19-related death rate per capita that has yet to even reach 2 percent of what the United States is experiencing. As a result of its massive early intervention, South Korea managed to suppress transmission of the virus and, subsequently, keep most factories, shopping malls, and restaurants open. Meanwhile, in the United States, businesses surveyed by the Federal Reserve in May expressed pessimism and uncertainty, which appears likely to persist for months to come since a full strategy for suppressing the virus has yet to be put into place. The experiences of these two countries are reflected in the data: The International Monetary Fund projects that South Korea will experience a GDP contraction of 1.2 percent in 2020, while the United States will experience a GDP contraction of 5.9 percent.
While Congress continues to debate whether to provide more stimulus funding to businesses and individuals, it is worth remembering that at the onset of the pandemic, the United States’ current trajectory was not a certainty. The failure of the Trump administration to take the coronavirus crisis seriously and its inadequate and delayed testing regime led to a public health crisis that required workers and consumers to shut down their activity. The failure to implement a speedy response to keep people employed—whether through supporting small businesses, preventing state and local job cuts, or maintaining workers’ connections to payrolls—has resulted in millions of layoffs that may have otherwise been avoided. Already, this has caused the United States to experience far higher unemployment levels than other countries. And now, with the Trump administration and its allies refusing to take steps that could prevent further and deeper pain, the U.S. economic fallout is likely to be far worse than that of other developed nations.
Even as the United States approaches a 20 percent unemployment rate and suffers the highest COVID-19-related death toll in the world, President Trump continues to downplay the importance of testing. The nonpartisan Congressional Budget Office has projected that GDP in the United States is expected to contract at an annualized rate of 40 percent in the second quarter of 2020 and 5.6 percent for the year overall. As other countries begin to reopen and experience economic growth, it is important to remember that though a recession in the United States was likely unavoidable, there is strong evidence from other countries that shows that President Trump’s botched response made the U.S. recession significantly longer and deeper than necessary.
Ryan Zamarripa is the associate director of Economic Policy at the Center for American Progress.
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