U.S. stocks may have enjoyed a midweek surge thanks to the government's COVID-19 bill. But experts say the virus' long-term effects on the American economy will be very negative.
U.S.-China Business Council President Craig Allen says the nation's temporary business closures, worker layoffs, and financial market vulnerability are just the beginning of the uncertainty. Many American factories have been forced to stop production. Airlines, hotels and restaurants have been hit particularly hard.
To alleviate the outbreak's effects on the economy, the U.S. government has taken series of measures. President Donald Trump has declared the State of Emergency two weeks ago, which allows the federal government to distribute 50 billion U.S. dollars to states, cities and territories. Trump also invoked the Defense Production Act, which allows the federal government to take command of some factories to producing medical supplies.
Allen believes that the U.S. has done a very good job to respond to the expanding economic impact of virus in the U.S., including a series of monetary and fiscal stimulus measures taken by the Federal Reserve, the congress, as well as actions taken by the president to marshal necessary resources.
"To provide monetary stimulus, the Fed has really done a magnificent job, in my view, by making the largest cut of federal interest rates, since the 2008 financial crisis, restarting quantitative easing, and adding 1.5 billion of liquidity to the banking system to ensure the banks have the stability to continue to lend. And markets are clearing. That's very important. If the markets are not clear, then we have real problems, so as long as the markets are clear, I think we'll be fine. Treasury has done its part by extending the tax filing deadline."
But Allan says that COVID-19's impact on the U.S. will continue. Besides its impact on unemployment and global demand, the supply chains will be hit hard, too.
"COVID-19 will continue to have a large impact on the U.S. economy, potentially through longer term, through supply chain disruptions... The supply chains have been disrupted, when China, and later South Korea and Japan began to have problem. Many American factories are forced to slower or close their production… Even as China's manufacturing sector begins to get back to normal, this outbreak will have an impact on the demand in China and globally."
Allen also believes a recession could be coming,
"The COVID-19 spread has had an extremely negative impact on the U.S. economy. Probably most importantly, there is a huge amount of uncertainty. We don't how like the spread of the COVID-19 will be, and don't know how long it will last… As you said, there is a recession risk. I think that is very real."