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2020.04.14

The coronavirus holds the fate of Trump as he seeks reelection

The article was originally posted on RONZA on March 16, 2020

The rises gained in stock prices during the past three years of the Trump administration have vanished all at once. What will happen to them when the presidential election is held in November?


The outbreak of infection with a new strain of coronavirus (COVID-19), which began in Wuhan, China, spread rapidly, mainly to Italy, South Korea, Iran, and other countries which have close connections with China, and then throughout the world. The number of infected persons and the death toll continued to rise, reaching approximately 130,000 and 5,000, respectively, as of March 14. Finally, the WHO Director-General declared COVID-19 a pandemic.

Chancellor Angela Merkel of Germany, which is close to Italy, presented an expert's opinion that without vaccines and other prophylactics, 60-70% of Germany's population might be infected.

Two weeks ago, it appeared that Americans, particularly President Donald Trump, thought that COVID-19 was a matter of no concern to the United States as the number of infected persons in the country was small (60 persons as of February 28). Judging from President Trump's comments, we were concerned that the U.S. might refuse Japanese entry into the country.

In order to attend a conference, I had planned to visit the U.S. from March 16, but on March 9, I informed its organizers that I could not participate in it because the U.S. might refuse me entry into the country or detain me for two weeks because of COVID-19. But on the following day, I was informed that the conference would be cancelled.

During the past two weeks, COVID-19 infection has spread rapidly in the U.S., leaving 2,200 persons infected and 49 persons dead. Since there are differences and deficiencies in testing systems among countries, a simple international comparison of the number of infected persons is not appropriate, but in the U.S., the number of deaths, which may be appropriate to compare, has become double that in Japan. Far from criticizing Japan's response to COVID-19, the U.S. has stumbled into a grave situation. If this continues, Japan may have to restrict the entry of Americans into the country.


Trump's mysterious actions

In addition, the view is spreading that the responsibility for allowing COVID-19 to spread as described above lies with the Trump administration.

First, on February 26, President Trump appointed Vice President Mike Pence, who had allowed the spread of HIV virus infection when he was the Governor of Indiana, as the manager of a team of officials to take countermeasures against COVID-19. In those days, although an official in charge of health proposed to change injection needles, Pence failed to take quick action, saying, "I'm going to go home and pray on it (God)." Later, he was criticized for thus allowing the infection to spread. He is a devout believer in Christianity but not a scientific expert.

Trump has posted tweets repeatedly, saying that the U.S. government was controlling COVID-19 extremely well and that Americans did not need to worry. In one tweet, he argued that people would not develop serious symptoms even they became infected and that they might even go to work. He has treated mass media as if they were to blame, saying that it was fake news that COVID-19 might cause a serious situation.

He insisted that the number of deaths was small compared to influenza, but this was the number counted when COVID-19 was in its initial phase, and no one knows what will happen in the future if the infection spreads. Director Anthony S. Fauci of the National Institute of Allergy and Infectious Diseases, who is responsible for countermeasures against COVID-19 in the U.S. government, said that the fatality rate for COVID-19 was ten times as high as that for seasonal influenza.

Trump remarked that vaccines could be developed soon, but Director Fauci immediately denied his remark on the spot, saying that it would take one to one and a half years to do so. The cruise ship allowed its passengers to disembark, an action that was opposite to Trump's argument.

It seems that even Trump cannot deny what scientists say. As described above, the Trump administration is confused, and such a situation is being exposed to the eye of the general public. This is unusual.

While Trump assures the American people that there are sufficient testing instruments, the Governor of Washington, where the death toll is high, criticizes him for the short supply of testing instruments that led to the spread of COVID-19. In fact, it is reported that those who suspect infection cannot undergo testing, and Director Fauci admitted to a mistake in his testimony before Congress, saying that the U.S. did not see a sufficient number of tests conducted compared to other countries.

Furthermore, even now, when the number of infected persons is rising this much, President Trump insists that he will continue to hold meetings to seek his reelection, though Director Fauci requests Americans to refrain voluntarily from holding large meetings and Joe Biden and Bernie Sanders, both Democratic presidential candidates, have cancelled large meetings of supporters.


Employment and stock prices are everything to Trump

Why has President Trump made remarks that denied the effects of COVID-19?

The reason was that he worried about its effects on the American economy. No matter how much the President denies it, he cannot suppress the spread of infection, but Trump, who feared the effects of COVID-19 on the economy, must have wanted to convince himself that the effects of COVID-19 were not serious and communicate his conviction to the American people.

Among the economic indicators, he relied most on employment and stock prices for his reelection.

Up to now, the unemployment rate has continued to fall, and currently, it remains at 3.5%, a 50-year low. The key to Trump's reelection is to win more votes from African Americans because he drew votes from only 8% of them in the previous presidential election. For this reason, he has argued that while the employment of African Americans had risen, the unemployment rate for them had been kept at a record low. Certainly, employment has been all right up to now.

But with the outbreak of COVID-19, the situation has changed completely.

In advanced countries such as Japan and the U.S., tertiary industries such as services account for around 80% of total GDP as agriculture and manufacturing decline. Moreover, in service industries, which consist basically of face-to-face services, the relative importance of employment or labor is high compared to manufacturing industries in which the need for labor is decreasing as mechanization progresses.

In the U.S., manufacturing industries, which have a 12% share of total GDP, hold only an 8% share of total employment as indicated in the table below. Conversely, health such as medical services and social businesses have an 8% share of total GDP but holds a 13% share in terms of employment, with 6% for GDP and 10% for employment in retailing, 3% for GDP and 9% for employment in the lodging (hotel) and restaurant industries, and 2% for GDP and 5% for employment in other services.


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Source: This table has been created by the author using the Gross Domestic Product by Industry, which is provided by the U.S. Department of Commerce Bureau of Economic Analysis (BEA).

Compared to manufacturing, one characteristic of services is that production and consumption occur at the same time. Cars manufactured at factories are used at home. But dishes served at a famous French restaurant in Ginza cannot be eaten unless one goes there. One can enjoy watching a soccer game on TV but goes to a stadium if one wants to enjoy the real excitement in the stadium. A Broadway musical cannot be enjoyed unless one goes to New York's Broadway. Dances by maiko girls cannot be seen unless one goes to Kyoto's Gion district.

Basically, as described above, service industries exist and grow in places where people gather. But in order to prevent infection with COVID-19, the government has to restrict meetings of people and urge people to refrain from holding large meetings. This affects services rather than manufacturing. In addition, many people are employed by service industries. If service industries are hit, layoffs would grow, boosting unemployment.

In Italy, where 18,000 persons were infected and 1,266 persons died (as of March 14), all stores were closed except pharmacies and food shops. In the U.S., states such as California, Washington, New York, Maryland, Pennsylvania, and Washington D.C. have already declared a state of emergency. The governors of these states have a stronger sense of crisis than President Trump.

The Governor of New York ordered places where 500 people or more gathered to be closed. This makes it impossible to enjoy Broadway musicals. Events such as concerts and fairs as well as matches of sports such as professional basketball and hockey have been cancelled. America's Disneyland theme parks have been closed since March 14.

In the U.S., shows and sports are major industries, which employ large numbers of people. Trump banned passages from 26 of European countries except the United Kingdom for 30 days from March 14 (The U.K. was added to the list from March 16). This represents a major blow to not only the airline industry, but also the tourism industry such as hotels.

In Japan, too, tourism, department stores, and other industries are significantly affected as they see decreases in the number of visitors from overseas. If commercial facilities are closed, cars and other products from manufacturing industries would not sell.

Employment will decrease. It will become difficult for Trump to emphasize his accomplishments like employment growth among his supporters.


The three-year rises in stock prices vanished all at once

President Trump has also stressed steadily rising stock prices as one of his accomplishments.

According to his arguments, the aim of trade disputes with China was to reduce America's trade deficits. But until around the summer of 2019, America's trade deficits had expanded. When I asked one of my friends who worked for a Washington think-tank at that time, "Isn't Trump's policy producing a contrary result?" he replied that what was important to Trump was only stock prices and that other indicators were unimportant.

Stock prices had also risen steadily until only recently. Indeed, the Dow Jones industrial average, which stood at 19,864 in January 2017, when Trump was inaugurated as President, had gone up by 1.5 times, reaching a peak, at 29,551, on February 12 of this year.

On March 13, however, the Dow fell suddenly to around 20,000. The rises that had been gained in stock prices since the formation of the Trump administration vanished all at once.

The March 11 TV announcement by Trump of a ban on passages from European countries had contrary effects on the stock market. Many investors in the American middle classes hold stocks as long-term assets rather than make money on the stock market in the short run. Falling stock prices make them become aware that the value of their assets will decline, which in turn erodes consumer confidence. And if this affects the economy, employment would diminish.


Declaring a national emergency is like a drop of water on a hot stone

To President Trump, the spread of COVID-19 was beyond all expectations.

But if he continues to take action as he did in the past, the situation will become even worse, having more serious effects on the American economy. Seeking reelection is out of the question.

On March 13, driven into a corner, Trump declared a national emergency and announced that he would take emergency measures totaling $50 billion (equivalent to \5.4 trillion). On the same day, partly because of the effects of these measures, the New York stock market rallied, boosting the Dow by 1,985 points. But it fell by as many as 2,600 points during the week that followed. Stock prices have not fully recovered.

The main point of these countermeasures is to expand the testing system.

The administration predicted that 500,000 testing kits would be added early in the following week and that private laboratories would be able to conduct five million tests within one month. Even if that happens, those who do not develop symptoms would be requested to refrain from undergoing a test.

Judging from the fact that in the past, persons other than those who came into close contact with infected ones were not allowed to undergo a test, this is a certain amount of progress. But requesting those who develop no symptoms not to undergo a test is like implying that the testing system is still insufficient. Some of the people who are confirmed as infected in Japan have no symptoms.

The Governor of Ohio announced that meetings of 100 persons or more would be banned and that all schools in the state would be closed. Ohio Department of Health Director said that at least 1% of the state's population (11.7 million), or over 100,000 persons, carried coronaviruses. Up to now, only five of the 52 persons so far tested in the state have been confirmed as infected. Some criticized the Director, saying that his estimate was too high, but the Director made it clear that the number of actually infected persons far exceeded the number identified through tests.

If it is assumed that this figure is correct, a simple calculation shows that at present, three million Americans carry coronaviruses because the U.S. has a population 30 times that of Ohio. Five hundred thousand testing kits are not sufficient. Furthermore, infection with COVID-19 will spread in the days to come. In an American public broadcasting program, an expert from Harvard University pointed out that the number of infected persons was doubling every six days. It is unknown whether even five million tests will be enough in one month's time. Moreover, Trump has not requested a ban on meetings or similar measures as the governors of various states did.

By saying that "national emergency" was two very big words, Trump emphasized the importance of the countermeasures taken and the seriousness of his administration. Since he became President, he has up to now declared a national emergency seven times. One of them was to build walls to reject immigrants.

What is important is that this is effective only in delaying the speed of infection as it spreads. It would be like reducing the speed of a car running recklessly at a speed of 200 km/h to 150 km/h.

It will take at least another year or more to develop and distribute vaccines needed to eradicate the virus. In the interim, the number of infected persons and deaths will grow. It is highly likely that America will run into the situation with which Italy is currently faced.

Even if stock prices are recovered through monetary relaxation, meetings of people must be prohibited to suppress the spread of infection. This will have serious repercussions on the economy and employment, primarily in service industries. Financial and fiscal policies are helpless against the disruption of global supply chains in manufacturing industries.

In other words, as Americans cope with COVID-19, there are no effective measures to recover the real economy as there were when Lehman Brothers failed. If Trump attempts to invigorate service industries, which require meetings of people, COVID-19 infection will spread, further worsening the whole economy, including service industries. He is beset on all sides.

President Trump can no longer boast of the results of his economic policy.


Biden is more and more favorably rated

It has been said that with 30-40% of American voters supporting Trump and around 40% backing up a Democratic candidate, the presidential election in November of this year depends on which of the two gains the remaining 20-30%.

If employment is threatened and the number of deaths grows as COVID-19 spreads, the 30-40% of American voters who endorse Trump would be shaken. Furthermore, if the testing system is expanded as proposed by Trump (which is necessary), the number of persons confirmed as infected would rise even though the reality remains unchanged. This will have negative psychological effects on Americans.

The enthusiasm of his supporters centered on white workers used to be felt in past Trump rallies. Even if he spread dubious fake news and made white supremacist remarks, his supporters did not try to ascertain whether they were true. Trump added two conservative judges to the bench of the Supreme Court, and if employment and the economy were strong, the Republicans and Trump supporters would think that everything else was a matter of no consequence.

But COVID-19 is a matter of health and even life or death. If they take Trump's fake news as the truth, Americans will face a serious problem.

The excitement of Trump supporters' rallies has helped Trump supporters nationwide to confirm that many Americans stood by Trump as they did. Trump will soon have to give up the idea of holding meetings of supporters, and even if he hosts such meetings, they would defeat their own purpose if his supporters do not gather out of fear and meetings are quiet.

The 20-30% of American voters who have not decided which candidate they support are likely to more favorably evaluate Biden, who has administrative experience as the Vice President under the Obama administration and would certainly take actions while listening to the opinions of experts, rather than Trump, who is unreliable as he has made mistakes when coping with COVID-19. Trump has proven that he is not suitable as a leader in time of crisis. In the presidential debate, Biden will attack Trump in this respect.

Up to now, since there were too many Democratic candidates, the prevailing view has been that Trump had an advantage. But Democrats are rallying to support Biden.


Vital swing states and the Midwest

In most of the states, it is known before the election which candidate will win in the presidential election. The Democratic candidate will win in California while his/her Republican counterpart will take all electors of Tennessee's electoral college.

There are, however, states called "swing states," which means that it is unknown in which way voters swing until they cast a vote. About ten of the 50 states nationwide, including Michigan, Ohio, Iowa, Wisconsin, Pennsylvania, Florida, and Colorado, are called "swing states." The presidential election depends on whether the candidate can win in these states.

Also important is an area called the "Middle West." Stretching from the center to northeast of America, the Midwest includes Michigan, Ohio, Illinois, Iowa, Wisconsin, Minnesota, and Pennsylvania.

Like Michigan and Ohio, many of the Middle Western states are also swing states. This area prospered because of its automobile and iron and steel industries, but since these industries declined, it came to be called the "Rust Belt." Traditionally, the Democrats were strong in this area, but in 2016, the Republican candidate Trump won the election by appealing to workers in the Rust Belt, saying that he would bring back jobs. After his inauguration, he raised tariffs on iron and steel to restrict imports, and now, he is also going to raise tariffs on automobiles.

The Midwest is the Rust Belt and at the same time is the Corn Belt, where agriculture is the most prosperous in the U.S. Since farmers have traditionally supported the Republicans, the Republican candidate cannot win if they lose the votes of farmers.

In order to be reelected, President Trump needs to win not only in the swing states but also in the Midwest, which is the Rust Belt as well as the Corn Belt.

The reason Trump initiated Japan-U.S. trade negotiations was to gain better competitive conditions for America's agricultural products in Japan as the effectuation of TPP11 made them less competitive than those of Australia and other countries. In the U.S.-China agreements at the end of last year, Trump urged China to promise that it would increase imports of agricultural products.


The truth is that the Democrats have an advantage

In terms of geographical advantages, the Democrats must have an advantage over the Republicans. As discussed in " Objection to 'The Republican Party's Good Fight!' Caution Signal against Trump's Reelection," the following is an analysis of the results of the 2018 mid-term elections.


(In the election of Senators) In the middle west of the U.S., which is called the "Rust Belt" and greatly contributed to Trump's winning of the 2016 presidential election, the Republican Party won only in Indiana and Missouri, while the Democratic Party won in Michigan, Ohio, Pennsylvania and Minnesota... In the 2016 presidential election, the Democratic Party won the office of governor in the State of Michigan, where the final result was not attained for a long time due to an extremely close fight. In the Middle West, where Michigan is located, the Democratic Party won gubernatorial elections in Wisconsin, Minnesota, Illinois, and Pennsylvania. In the West, it won them in New Mexico and Colorado, both of which are regarded as swing states.


Furthermore, Biden is somewhat tougher for Trump to deal with than Hillary Clinton with whom the latter fought against in 2016. The reason is Biden's strength in the Rust Belt, which was considered as a factor in Trump's victory.

Protectionist policy such as withdrawal from TPP and review of the North American Free Trade Agreement (NAFTA) was advocated by Senator Bernie Sanders, who fought in the 2016 Democratic primaries and caucuses. By advocating such policy, Sanders drove Clinton into an awkward position. Having seen this play out, Trump repeated similar arguments in the final phase of the presidential election, and by defeating Clinton in the Rust Belt, which was originally the Democrats' constituency, he won the election.

In the 2016 Democratic primary in Michigan, Sanders beat Clinton. But in the Michigan primary the other day, Biden overwhelmed Sanders. Essentially, Biden is highly popular in the Rust Belt. Some workers in the Rust Belt are disappointed with Trump. If he maintains momentum until the final election, Biden will win the Rust Belt.

Another advantage to Biden is that as the number of Hispanic residents grows, Texas, a large constituency, is changing from a red state, where the Republicans always win, to a purple one, where it is unknown which of the two parties wins.

In the state of Texas, where the Republicans were traditionally dominant, Senator Ted Cruz, a political heavyweight, who had run for the presidency and fought fiercely against Trump to the last for presidential nomination in the Republican Party in 2016, managed to break away from Representative Beto O'Rourke, a Democrat, who had been brought into sudden prominence, by a narrow margin in the 2018 mid-term senate election.

In this year's presidential election, O'Rourke has expressed his support for Biden. The electoral college of Texas has 38 votes, the second largest after California with 55 votes, and larger than that of New York and Florida, which has 29 votes each. If he wins in these states, Biden would take a major step forward to victory in the presidential election. Indeed, that may determine the winner of the presidential election.

In addition, the Republican Party lost to the Democratic Party in last November's gubernatorial elections of Kentucky and Louisiana, both of which are red states. The Republicans are declining in influence.


Biden's weaknesses

But Biden, too, has weaknesses. One of his weaknesses is that young people overwhelmingly support Sanders, who argues for a universal health insurance plan and exemption of university tuition fees. Sanders will contend that universal health insurance, which enables even the poor to undergo tests and receive medical treatment, will be effective as a measure to cope with COVID-19.

The major reason for the victory of the Democratic Party in 2018 is that women, who are opposed to President Trump, and youths, who have bad feelings toward the occurrence of indiscriminate shooting incidents due to weak gun control, went to vote. In the senatorial election in Tennessee, the singer Taylor Swift called on the Tennesseans not to vote for the Republican candidate, who obstructed the improvement of women's rights. This helped boost the number of votes registered in the state, particularly young ones, to a record high. The voter turnout for the young, who had not been interested in elections, improved not only in Tennessee but also throughout the nation.

If Biden fails to garner the support of these young people, 40% of the Democratic Party's supporters might be eroded. If Sanders does not withdraw from the primaries, causing a wider crack between the Senator from Vermont and Biden in debates or similar, young people will not go to the polls, benefiting Trump. This will repeat the nightmare of 2016.

As both candidates have weaknesses, the major factor for the presidential election is which of the two can gain the support of intermediate people who have not decided whom they will vote for. If these people decide just before the election in November, it is important how COVID-19 as well as America's economy and employment are at that time. If Trump fails to contain the coronavirus, allowing it to sweep the country, the likelihood will be higher that Biden is elected as president.

Kazuhito YAMASHITA , Other Columns & Papers

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