A Caring Act?

By Zhou Mi

On March 27， U.S. President Donald Trump signed into law the Coronavirus Aid， Relief， and Economic Security （CARES） Act coming with a $2.2-trillion aid package to revive the economy hard hit by the novel coronavirus pandemic. On March 23， the U.S. Federal Reserve pledged unlimited quantitative easing to keep the markets functioning.

This emergency stimulus aid is the largest of its kind in U.S. history. However， whether it will stimulate and stabilize the economy remains to be seen， especially as it offers only limited support for production and demand.

Nitty-gritty of act

The 854-page CARES Act provides four categories of support measures： ensuring workers are paid and employed； providing assistance for workers， families and businesses； supporting the healthcare system in the fi ght against the coronavirus； and maintaining economic stabilization and assisting the severely distressed sectors.

Financial support will be injected into many areas. Taxpayers will receive a tax rebate credit of up to $1，200 plus $500 for each qualifying child they have. On top of whatever base amount an out-of-work person receives from the state， the law has added another $600 per week from the federal government.

The U.S. practice of coming up with economic stimulus policies to restore the economy dates back to Franklin Roosevelts New Deal in the 1930s， a package of projects， reforms and regulations to offset the impact of the Great Depression. More economic stimulus plans were activated in the five economic recessions in 1964， 1971， 1975， 1981 and 2001.

After the fi nancial crisis in 2008， the U.S. Government adopted a number of fi scal policies such as tax reduction， purchase of nonperforming assets， provision of guarantees and infrastructure construction， spending nearly $3 trillion on various programs during 2008-10. Compared with its predecessors， the CARES Act provides more funds for a wider range of areas in different forms.

Its complex content refl ects the contentions of different interest groups， not only in the distribution of the funds but also in the adjustment of administrative practices. Though the law has been signed， some areas are still unclear， which allows the White House a relatively big discretionary space during its implementation.

Impact on economy

The novel coronavirus outbreak has disrupted both the manufacturing and service industries in the U.S.

Passengers wait for security screening at New Yorks JFK Airport， the U.S.， on March 28

Global effect

Since the U.S. economy is closely linked to the global economy， as the pandemic spreads， the weakening global market de- mand will make it more diffi cult for the U.S. to export. The pandemic will increase the diffi culty in keeping its supply chain stable. Taking expansionary fiscal and monetary policies in a weak demand environment will not only lead to the formation of asset bubbles， but may also cause serious structural imbalance in economic and social development.

It is not clear who the specifi c benefi ciaries of most of the funds in the CARES Act are. Boeing， which has been in diffi culties in recent years， may meet its defi nition of being a key aviation company that maintains national security and obtain loan support. But energy companies that have been hit hard by the falling global oil prices will fail to benefi t directly.

After the implementation of tax cuts last year， the U.S. fi scal defi cit has soared rapidly， and increased economic activity cannot offset the negative impact of the declining tax revenue. The additional fi scal expenditure will increase the fi nancial pressure on the federal government and lead to a larger national debt， which will be transferred to the inves- tors worldwide who hold U.S. dollar assets.

Even though， Nancy Pelosi， the Democratic Speaker of the House of Representatives， said Democrats have begun discussing the need for the next round of relief programs.

Although other countries are taking measures to respond to the impact of the pandemic and the Group of 20 members reached a consensus on coordinating their response to the crisis at a recent extraordinary virtual summit， they might not follow the U.S. approach. Unlike the U.S. whose currency and treasury bonds are considered safe havens in the investing world during crises， most economies lack the resources needed for a large-scale economic stimulus plan. Moreover， the sovereign debt crisis that erupted in many European countries after the 2008 fi nancial crisis has also made them wary about overdrawing on future revenue.