The International Monetary Fund (IMF) has indicated that the COVID-19 pandemic, already a global health crisis, will cause a global recession and risks causing a depression without a robust response. What role can and should the United States play in domestic and global economic recovery?
Coronavirus disease 2019 (COVID-19) has quickly spread to become a global pandemic. As countries adopt severe measures to slow the disease, including travel and trade restrictions, quarantine and social distancing protocols, and mandatory business closures, policymakers around the world are grappling not only with the grave public health crisis but also with the economic devastation COVID-19 poses. Though certain countries have managed to slow the virus’ spread, the policies required to do so have caused large-scale economic disruptions to both the supply and demand sides of the economy: factory shutdowns and travel restrictions have fractured supply chains, while mass employee layoffs and social distancing protocols have suppressed consumer demand.
The economic effects of the pandemic have incited a severe global recession. National economies are predicted to shrink dramatically, and financial markets—already roiling—will likely see continued volatility and losses in the coming months. Governments and central banks have mobilized programs to provide temporary relief to workers and businesses and to support financial markets, but such programs can only proffer relief, not initiate recovery. Policymakers will need to consider a larger and longer-term strategy for recovery, once a viable treatment or vaccine has blunted the effects of COVID-19.
The United States has historically played a leading role in responding to global economic crises, coordinating policies bilaterally with countries and through multilateral forums such as the Group of 20 (G20) and International Monetary Fund (IMF). It could do so again, but leading such a response will require committing U.S. taxpayer funds. Given the toll COVID-19 has taken on the U.S. economy, devoting even modest amounts of resources to others could be politically unpopular. The United States could prioritize its own recovery over a global response, but continued turmoil abroad could spill over into the U.S. economy. Moreover, if the United States does not lead a global response, another country could. China has sought to expand its influence through infrastructure investment and greater participation in multilateral forums in the past. Now, Beijing is increasingly positioning itself as a leader in the global response to COVID-19 by providing assistance and supplies to other countries and advising governments on managing their responses. U.S. policymakers will need to consider both the economic and geopolitical fallout of COVID-19 as they address recovery from the pandemic, including the role the United States should play in that recovery.
The IMF has indicated that the COVID-19 pandemic, already a global health crisis, will cause a global recession and possibly a depression without a robust response. The National Security Council (NSC) is meeting to discuss a strategy for both U.S. and global economic recovery. NSC members will need to consider how best to support the U.S. economy while promoting global recovery. Moreover, members should consider the risk of ceding international leadership to another power; with China emerging as a potential international leader in the response to COVID-19, the pandemic and ensuing recovery could reshape geopolitical dynamics for years to come.
NSC members should consider any combination of the following policy options:
Lead a multilateral response through forums such as the G20 and the IMF to coordinate global stimulus measures and fund lending programs to support struggling economies. This option would advance U.S. leadership in the recovery but would require significant U.S. financial contributions. Forging a global consensus about what needs to be done collectively and individually could also be difficult.
Work bilaterally to provide loans and debt relief to allies and partners, encouraging others to follow suit. This approach also entails significant U.S. financial contributions at a time of domestic economic struggle, and there is no guarantee it would sufficiently stabilize the global economy. Pursuing this option alone could also allow China to expand its leadership in multilateral forums such as the IMF.
Prioritize domestic economic policies over aiding an international response. This option allows the United States to focus the brunt of its resources on national recovery but does not address the risk of global recession spilling over into the U.S. economy. It also risks allowing China to gain influence.