Don’t be blind to China’s rise in a changing world

Anti-Beijing bias has blinded too many for too long to opportunities

Ray Dalio

China’s economy is roughly the same size as the US’s and expanding at a faster pace © Susan Walsh/AP


For as long as I can remember, people have said that China cannot succeed. Communism doesn’t work. 

Authoritarianism doesn’t work. The Chinese aren’t creative. They have a big problem with bad debts and property speculation. Yet every day we see China succeeding in exceptional ways.

It has achieved some of the world’s lowest Covid-19 case rates. Over the past year, its economy grew at almost 5 per cent, without monetising debt, while all major economies contracted. China produces more than it consumes and runs a balance of payments surplus, unlike the US and many western nations. 

This year nearly half the world’s initial public offerings will be in China, including Ant Financial’s $30bn listing, the world’s biggest ever. Even Tesla’s best-selling Model 3 car may soon be made entirely in China.

The world order is changing, yet many are missing this because of a persistent anti-China bias. China’s extraordinary performance isn’t new. In fact, apart from the 1839-1949 “Century of humiliation”, it has historically been one of the world’s most powerful countries and cultures. 

Just over the past four decades its economic changes have been remarkable. Whatever criticisms you may have about Chinese “state capitalism”, you cannot say it hasn’t worked, even if you strongly disagree with how Beijing has done it.

When I first visited China 36 years ago, I would give $10 pocket calculators to high-ranking officials. They thought they were miracle devices. Now China rivals the US in advanced technologies and will probably take the lead in five years. Since 1984, per capita incomes have risen more than 30 times, life expectancy has increased by a decade and poverty rates have fallen nearly to zero. 

In 1990, China’s first stock market was launched, designed by seven young patriots who I knew. Since then, it has become the second largest in the world.

All this is to say that China’s rise has giant political, economic and investment implications. Politically, China has become a major issue for both parties in the US, which fears its rise, spreading global influence, and rejects its authoritarian model and treatment of minorities such as the Uighur Muslims in Xinjiang.

China’s rejoinder is that a strong hand is needed to maintain order, what happens inside its borders is its business, and the US has its own human rights problems. 

Its sovereignty over Taiwan, Hong Kong and other areas are also big issues that are hotly disputed. Nobody knows how these tensions will pan out, but they will affect us all.

Meanwhile, China’s economy is roughly the same size as the US’s and expanding at a faster pace — so time is on China’s side. It has a growing population of well-educated people, with around a third of the world’s science and technology university majors, three times the US share. It also produces and collects vastly more data to process with artificial intelligence. 

For many in the west, this has a dark side in terms of state surveillance. But for many Chinese it reinforces positive social norms while also promising vast efficiencies. One way to look at China’s relative power is that, with four times the US population, when its per capita income reaches half the US’s in about 25 years, its economy will be twice as large.

Last, there are the investment implications. As a global macro investor, I think a lot about how much I should invest where, looking at fundamentals and how others are positioned. 

China’s fundamentals are strong, its assets relatively attractively priced, and the world is underweight Chinese stocks and bonds. These currently account for 3 per cent or less of foreign portfolio holdings; a neutral weighting would be closer to 15 per cent.

This discrepancy is at least in part due to anti-Chinese bias. I think it is about to change. Chinese markets are opening up to foreigners, who can now access at least 60 per cent of them compared with 1 per cent in 2015. Benchmark weights in major indices are rising. 

As a result, I expect China to enjoy favourable capital inflows that will support the currency, already at a two-year high, and financial markets too. All this argues for a China overweight in my portfolio.

Of course things can go wrong in any country. Beijing may not stay its current course of economic reform, though I doubt that will happen. 

The US and China are also competing fiercely — some say warring — over trade, technology, geopolitics, capital markets and military power. 

No one can know how bad these wars will be, which country will win, or how. That is why I diversify and allocate money to both countries. 

In the long run, timeless and universal truths determine why countries succeed or fail. 

In brief, empires rise when they are productive, financially sound, earn more than they spend, and increase assets faster than their liabilities. 

This tends to happen when their people are well educated, work hard and behave civilly. Objectively compare China with the US on these measures, as I chronicle in an ongoing study, and the fundamentals clearly favour China. 

Prejudice and bias always blind people to opportunity. So, if you have been a China sceptic for reasons that don’t square with what is happening there, I suggest you clear your mind. 

Likewise for events in the US and its place in the changing world. 

The eve of the US election is a good time to reflect on both.

Winners and losers

The pandemic has caused the world’s economies to diverge

But its long-term impact will be even more far-reaching


In february the coronavirus pandemic struck the world economy with the biggest shock since the second world war. Lockdowns and a slump in consumer spending led to a labour-market implosion in which the equivalent of nearly 500m full-time jobs disappeared almost overnight. World trade shuddered as factories shut down and countries closed their borders. 

An even deeper economic catastrophe was avoided thanks only to unprecedented interventions in financial markets by central banks, government aid to workers and failing firms, and the expansion of budget deficits to near-wartime levels.

The crash was synchronised. As a recovery takes place, however, huge gaps between the performance of countries are opening up—which could yet recast the world’s economic order. By the end of next year, according to forecasts by the oecd, America’s economy will be the same size as it was in 2019 but China’s will be 10% larger. 

Europe will still languish beneath its pre-pandemic level of output and could do so for several years—a fate it may share with Japan, which is suffering a demographic squeeze. It is not just the biggest economic blocs that are growing at different speeds. 

In the second quarter of this year, according to ubs, a bank, the distribution of growth rates across 50 economies was at its widest for at least 40 years.

The variation is the result of differences between countries. Most important is the spread of the disease. China has all but stopped it while Europe, and perhaps soon America, is battling a costly second wave. Over the past week Paris has closed its bars and Madrid has gone into partial lockdown. In China, meanwhile, you can now down sambuca shots in nightclubs. 

Another difference is the pre-existing structure of economies. It is far easier to operate factories under social distancing than it is to run service-sector businesses that rely on face-to-face contact. Manufacturing makes up a bigger share of the economy in China than in any other big country. A third factor is the policy response. 

This is partly about size: America has injected more stimulus than Europe, including spending worth 12% of gdp and a 1.5 percentage point cut in short-term interest rates. But policy also includes how governments respond to the structural changes and creative destruction the pandemic is causing.

As our special report this week explains, these adjustments will be immense. The pandemic will leave economies less globalised, more digitised and less equal. As they cut risks in their supply chains and harness automation, manufacturers will bring production closer to home. 

As office workers continue to work in their kitchens and bedrooms for at least part of the week, lower-paid workers who previously toiled as waiters, cleaners and sales assistants will need to find new jobs in the suburbs. Until they do, they could face long spells of unemployment. In America permanent job losses are mounting even as the headline unemployment rate falls.

As more activity moves online, business will become more dominated by firms with the most advanced intellectual property and the biggest repositories of data; this year’s boom in technology stocks gives a sense of what is coming, as does the digital surge in the banking industry. 

And low real interest rates will keep asset prices high even if economies remain weak. 

This will widen the gulf between Wall Street and Main Street that emerged after the global financial crisis and which has worsened this year. The challenge for democratic governments will be to adapt to all these changes while maintaining popular consent for their policies and for free markets.

That is not a concern for China, which so far seems to be emerging from the pandemic strongest—at least in the short run. Its economy has bounced back quickly. 

Later this month its leaders will agree on a new five-year plan which emphasises Xi Jinping’s model of high-tech state capitalism and increasing self-sufficiency. Yet the virus has exposed longer-term flaws in China’s economic apparatus. 

It has no safety-net worth the name and this year had to focus its stimulus on firms and infrastructure investment rather than shoring up household incomes. And in the long run its system of surveillance and state control, which made brutal lockdowns possible, is likely to impede the diffuse decision-making and free movement of people and ideas that sustain innovation and raise living standards.

Europe is the laggard. Its response to the pandemic risks ossifying economies there, rather than letting them adjust. In its five biggest economies, 5% of the labour force remains on short-work schemes in which the government pays them to await the return of jobs or hours that may never come back. 

In Britain the proportion is twice as high. Across the continent, suspended bankruptcy rules, tacit forbearance by banks and a flood of discretionary state aid risk prolonging the life of zombie firms that should be allowed to fail. 

This is all the more worrying given that, before the crisis, France and Germany were already embracing an industrial policy that promoted national champions. If Europe sees the pandemic as a further reason to nurture a cosy relationship between government and incumbent businesses, its long-term relative decline could accelerate.

The question-mark is America. For much of the year it got the policy balance roughly right. It provided a more generous safety-net for the jobless and a larger stimulus than might have been expected in the home of capitalism. 

Wisely, it also allowed the labour market to adjust and has shown less inclination than Europe to bail out firms that are in danger of becoming obsolete as the economy adjusts. Partly as a result, unlike Europe, America is already seeing the creation of many new jobs.

Instead America’s weakness is toxic and divided politics. This week President Donald Trump seemed to ditch talks over renewing its stimulus, meaning that the economy could fall over a fiscal cliff. 

Critical reforms, whether to redesign the safety-net for a tech-driven economy or to put deficits on a sustainable course, are all but impossible while two warring tribes define compromise as weakness. Covid-19 is imposing a new economic reality. 

Every country will be called on to adapt, but America faces a daunting task. If it is to lead the post-pandemic world, it will have to reset its politics.

Zero rates are a test of skill for family office investment managers

For advisers asked to preserve capital for generations, a widening negative real return on cash is damaging

Matthew Vincent 

Sitting on a pile: Cash reserves are always necessary to cover known liabilities, wealth managers advise © Getty


At the family offices of Europe’s wealthy dynasties, staff are used to negotiating art repository fees, wine-cellaring charges and furniture warehousing costs. But just over a year ago, they faced a storage bill they had never encountered before: Swiss bank UBS asked them to pay it to hold their cash.

At a negative interest rate of 0.75 per cent on deposits of more than SFr2m ($2.2m), that is 15 times more expensive than renting the two square metres it would take to store SFr2m in banknotes in a fireproof repository, humidity-controlled cellar or strongroom.

Charging Swiss-based clients for Swiss franc cash deposits was the only way UBS’s Swiss operation could offset the impact of negative interest rates introduced by its central bank.

With other Swiss banks taking similar steps, this is becoming a problem for more and more wealth managers.

Last month, UBS said clients outside Switzerland would pay higher charges for wealth management if they did not hold many assets beyond cash, as the burden of negative rates continued to weigh on the bank.

Commercial banks elsewhere face the same pressures. “The European Central Bank, Swiss National Bank and Bank of Japan have been using negative interest rate policies for a number of years,” notes Stéphane Monier, chief investment officer at Lombard Odier. “The [US] Federal Reserve and Bank of England have been more reluctant, but we could see some change, with negative rates becoming an option for both.”

It is a prospect UK-based multifamily office Sandaire takes seriously. Its chief investment officer, StJohn Gardner, believes that zero or negative yields on cash could become a reality. “Currently, cash lingering in bank accounts is generating precious little if anything in terms of interest. Even this is threatened, with recent statements by both the governor of the Bank of England and his deputy indicating that negative interest rates had not been ruled out,” he says.

Worse, argues Gardner, the possible impending pick-up in inflation will mean the real cost of negative rates could increase over time, assuming central banks keep their interest rates low. Modern monetary policy is likely be adopted “to inflate away the real value of the vast government borrowings. To do this, inflation must rise at a higher rate than government borrowing rises, which means holding interest rates lower than inflation,” he says.

Katie Nixon, chief investment officer at Northern Trust Wealth Management, which provides asset management services to affluent families, says low rates may persist “for even longer” than previously estimated, given the US central bank’s commitment to a zero-interest rate policy until inflation reaches an average of 2 per cent.

For investment managers with the task of preserving families’ capital for generations, such a widening negative real return soon becomes damaging. Rothschild & Co’s wealth management arm reminds clients that while Albert Einstein described compound interest as the “eighth wonder of the world”, its effect works both ways.

Losing just 1-2 per cent a year on cash in real terms “compounds significantly on the downside”, the wealth manager warns.

For families holding more cash than usual, this impact is proportionately worse. Hassium Asset Management, a UK-based wealth manager, recommends that the cash portion of a portfolio typically be no more than 5 per cent. 

But it notes that many investors currently have much higher levels than this, as they have been waiting for equity markets to fall before deploying funds.

But the sight of shares performing strongly since the spring has, for some investors, increased the pressure to invest in equities right now. “Investors may feel they have no alternative for their cash than to invest in higher-risk assets in order to make some form of return,” worries Gardner, “and they may not be factoring in the potential risks that go with it.”

Compared with cash, those risks are obvious, but the higher returns simply are not, warns Kevin Gardiner, global investment strategist at Rothschild wealth management. “Higher returns come at the expense of extra risk and/or less liquidity,” he argues.

Hassium chief executive Yogi Dewan agrees. “We would not allocate to higher-yielding assets as the risk reward is skewed to the downside,” he says. “Investors are not rewarded for credit risk and liquidity risk if markets sell off.”

That leaves more cautious family offices with two options. First, move zero-yielding cash into assets that present not much more risk but do offer a little more reward.

For Monier, that means the large-cap corporate bonds currently being bought up by various countries’ economic stimulus schemes. “We believe that short-duration investment-grade bonds are the natural alternative, as the asset class is backed by central banks’ asset purchase programmes in most countries,” he says.

Dewan also suggests short-dated corporate and government bonds can offer higher interest rates over cash.

Government bonds with a built-in inflation link are the preference of Sandaire’s Gardner, specifically UK index-linked gilts and US Treasury inflation-protected securities, with a currency hedge to avoid foreign exchange losses. He is also willing to consider the potentially inflation-beating yields from in-demand commercial property such as logistics hubs and distribution centres, government-contracted infrastructure projects, and precious metals. Gardiner at Rothschild is sceptical of gold and silver, though, because even after recent price increases neither metal has regained its 1980s price level in real terms.

Second, family offices can simply think of cash differently.

For Dewan, that means remembering it is a volatility dampener for multi-asset portfolios — particularly useful when both equities and bonds are historically very expensive.

For Nixon, however, that means regarding cash simply as a way of funding immediate needs without resorting to a fire sale of other assets. “Core to our investment philosophy is that ‘assets serve a purpose’, and the purpose for cash has never been clearer,” she says. “It is needed to provide liquidity necessary to fund near-term, high-value goals. This might include lifestyle spending, making a planned purchase, or providing financial support to a loved one, for example.”

Viewed in this light, suggests Sandaire’s Gardner, cash played a positive role in the first quarter of 2020 by enabling family offices to take a long-term view and not sell their equity holdings into volatile markets. Nixon believes, therefore, that a cash allocation will be needed whatever the cost, and the wealth manager’s decision is merely “how much?”.

Lombard Odier currently recommends 2.5-4.5 per cent of a portfolio’s value. Hassium says 5 per cent is its benchmark allocation, though it is running closer to 10 per cent right now. Rothschild also allocates a percentage of its clients’ “nest egg” portfolios to cash, but this varies according to their risk profile and the market outlook.

At Sandaire the cash level in an income portfolio is whatever sum is required to cover six months of regular withdrawals, with separate cash reserves to cover known future liabilities, such as school fees, buying new cars and “that scheduled yacht refit”.

Northern Trust does not specify a level but says the cash allocation in its global tactical asset allocation model has risen from “underweight” to “neutral”.

For Gardiner at Rothschild, there is one further positive way to think about sitting on cash: what it will enable you to do in future. “Cash still has a valid role to play,” he says, “as both a short-term store of value and a repository of opportunity.”

That is a repository still worth paying a price for, even if it doesn’t come with a high-tech sprinkler system.

The Superspreader in Chief

Donald Trump's Re-Election Chances Infected by COVID-19

Donald Trump appeared to be immune to anything that might ail him – until he failed in the battle against the coronavirus. It could very well cost him re-election in three weeks.

By Ullrich Fichtner, Veronika Hackenbroch, René Pfister und Christoph Scheuermann

United States President Donald Trump: America's First Patient Foto: MANDEL NGAN / AFP / Getty Images


Before Donald Trump himself became vulnerable, he was more than happy to label entire countries as "shitholes.” He disparaged Mexicans as rapists and used his Twitter account to indiscriminately denigrate TV hosts, actors, athletes and officials with just about any adjective he could muster. 

He demanded that members of Congress be removed from their seats, he insulted Senators, he attacked the justice system, mocked science, parodied people with disabilities and defiled the memory of fallen soldiers. For the longest time, none of this seemed to matter much.

Before Trump’s grip on power began to slip, he aggressively undermined the Constitutionally protected rights to freedom of the press and freedom of expression. He called facts into question and missed no opportunity to spread divisive propaganda. 

He called neo-Nazis in Charlottesville "good people” and, during his recent debate with Democratic challenger Joe Biden that was broadcast to 70 million television viewers, he voiced his apparent support for the far-right, racist "Proud Boys” movement. 

He has threatened to jail critics and opponents, and he has recently focused his attention on reviling mail-in voting, claiming with no proof whatsoever that it opens the door to electoral fraud. None of this has hurt him over all these years.

Before the foundation of Trump's power began to crumble, he separated the children of migrants on the Mexican border from their parents and had them locked in cages. 

He opened up protected areas in the Arctic for oil and gas drilling. He withdrew from the Paris climate deal and denied there is any such thing as man-made global warming, even as fires raged for weeks on the West Coast. Until recently, it seemed like nothing could harm him, like he was immune to everything.

In the middle of a global pandemic, the American president cut U.S. funding for the World Health Organization, he instigated trade conflicts with allies in Europe and North America and he flirted with dictators in the Middle and Far East. 

He drove his country into isolation in NATO and the United Nations. As a businessman, he pursued tax avoidance to an astonishing extent and accumulated debts like a con man. And despite all his promises, he never separated his private business from government affairs.

And yet for the longest time, none of this has been enough to shake his hopes for re-election on Nov. 3. It took the past 10 to 14 days for a cascade of events to finally diminish and perhaps even destroy Trump’s chances of victory.

In these past two weeks, a lot has happened even by the standards of the recent news cycles we have seen coming out of the U.S. Two weeks ago, the New York Times published its revelations about Trump’s tax records, destroying his legend of being a successful businessman and documenting his dangerous dependence on financial backers. 

The first TV debate early last week was so unprofessional, chaotic and, on Trump’s side, vituperative that it seems almost surprising that the 74-year-old Trump didn't physically attack the 77-year-old Biden.

Still, the New York Times revelations and the debate presumably wouldn’t have been a huge problem for Trump. His voters, after all, have already price in such chicanery. 

Nope, what it took was the kind of plot twist that even the best screenwriters would have blushed at: Trump, who has downplayed the coronavirus pandemic from the beginning, came down with COVID-19 - as obvious a development as it was unexpected. 

Covincapacitated

It seems likely that the virus forced its way into the White House around two weeks ago – and nine days ago, the president of the United States, one of the most sheltered people in the world, tested positive for the very disease he had been playing down for months. 

He had to be hospitalized for several days and he was treated with a cocktail of strong medications – all because of an illness that he repeatedly compared to a seasonal flu. 

The flu,though, wouldn't have had what it takes to finish Trump off politically. This virus, though, does – even if he completely recovers. After all, the president badly underestimated his opponent. And he wasn't immune.

If Trump fails on election day, and current polls indicate that he will, his management of the coronavirus pandemic will turn out to have been the decisive factor. If he fails, it will be because he didn’t take the virus seriously, instead trying to leverage all the presidential power at his disposal to transform public health into a partisan issue. 

Even after catapulting the pandemic to the top of the national agenda by getting infected with it himself, Trump is still trying to play the virus down. Since testing positive, America’s First Patient has performed terribly in dealing with the new situation.

He has since fallen far behind in polls in the swing states that will determine the election. In Michigan, Biden has an eight-point lead in the polls. He’s ahead by seven points in Pennsylvania and Wisconsin and by four in Florida. 

Biden even stands a chance in Arizona, which has long been firmly in the hands of the Republicans. It’s remarkable how clearly voters over the age of 65 throughout the country are turning away from Trump. Four years ago, a majority of them voted for him.

Of course, things could still shift in the president’s favor and a lot can still happen with three weeks left to go before the vote, but Trump’s prospects for re-election are shrinking.

His election campaign team just recently scaled back TV ad buys in many states in the Midwest, another indication that the president sees his chances there dwindling. Trump’s favorite pollster, 

Rasmussen, sees him 12 points behind Biden in national surveys. In the national average of surveys compiled by the data analysts at FiveThirtyEight, Biden has held at least a six-point lead since June. On Friday, however, that lead hit 10 points.

Exacerbating His Worst Traits

The infection and the fact that his wife and many of his closest staff members also got sick could have made Trump more reflective and perhaps even a little more sympathetic. 

And things did quiet down a bit when Trump first went to the hospital. But since the weekend, he has been  screaming into the void more than ever. On some days, it has seemed as though the steroids he has been treated with have produced the side effect of exacerbating his worst traits.

Trump fans and their opponents in Beverly Hills, Calif., on Oct. 3: "Don't let coronavirus control you." Foto: Apu Gomes / AFP


His return to the White House from the Walter Reed Military Hospital by helicopter was carefully staged for primetime, yet another act in the endless spectacle of his toxic masculinity. But suddenly, his solemn strides, his military salutes, his thumbs up and raised chin all missed their mark. For many, his return didn't trigger relief, but dread.

The images, carefully captured with a phalanx of cameras, were intended to tell a story of strength. But they didn't. 

Trump instead seemed like an out-of-place buffoon, the wrong man in the wrong place at the wrong time, a clown at the center of power who could be counted on to do anything but manage of the biggest crisis America has had to face in its recent history. In summoning up all his will to display his power, it suddenly became clear that he didn't have any.

Unintentionally, the images revealed that his power is completely divorced from responsibility, that he has no idea how to wield the power he holds, that he is only ever looking for his own benefit, even if it is a global pandemic.

Crude Mistakes

The mistakes he is now making are crude ones. His act of demonstratively pulling his mask off while standing on the Truman Balcony was seen as a gesture of irresponsibility. Trump, after all, was likely still contagious, just as he was one day earlier when he had his Secret Service detail drive him around in front of the hospital to ensure he would appear on TV.

He seems completely indifferent to the fact that he is currently putting all the people he meets in danger. And that anyone who has anything to do with him should actually be heading directly into quarantine. Trump seems to believe his own lies about the harmlessness of the virus. 

With that attitude, though, he is going to have trouble getting a majority of Americans to back him. It’s an attitude that has led to even more mistakes.

Once back at work, the U.S. president didn’t stop for a second for a bit of calm reflection about his own situation or that of his country. Instead, he grabbed for his smartphone and sent a video message to the world, one that millions of relatives of coronavirus victims were likely to find offensive: "Don’t let coronavirus control you,” the president said. "Don't be afraid of it."

Trump's illness has now given even more Americans pause: Perhaps there is, after all, a need for a change in strategy? 

How, for example, can you explain the fact that the U.S. only accounts for 4 percent of the global population, but fully 20 percent of the worldwide deaths from COVID-19? 

How did the country manage to reach the exorbitantly high number of 210,000 dead? 

How does that jibe with Trump’s mantra that his government has done a "fantastic job” in handling the coronavirus outbreak? 

And what if Anthony Fauci, the head of the National Institute for Infectious Diseases, is right with his warning that there may be another 190,000 deaths in the country before this is over?

Trump Never Took Virus Seriously

Even though he was informed of gravity of the situation very early on, Trump has never taken the pandemic seriously - and that’s now coming back to haunt him. His national security adviser, Robert O’Brien, warned as far back as January that the pandemic would be "the greatest national security threat to his presidency.” 

At the time, the U.S. had only a few confirmed infections, so Trump likely didn’t even think to take the warning seriously. He shifted to trivializing it, playing it down, denying it, wishful thinking and false hopes.

In mid-February, Trump said something that he would repeat on many occasions: "I think it’s going to work out fine. I think when we get into April, in the warmer weather, that has a very negative effect on that and that type of virus. So, let’s see what happens, but I think everything is going to work out fine.”

A few weeks later, as the number of infections in the U.S. went through the roof, he announced he would quickly lift existing lockdown measures and reopen the country entirely by Easter in April. The governors who followed the Trump line turned their states into pandemic hotspots. Others who refused were verbally abused by the White House and threatened with cuts in federal funding.

The president's helicopter "Marine One" on its way to Walter Reed Hospital (on Friday, Oct. 2, with patient Donald Trump on board): "Sicker than was officially admitted."



The president's helicopter "Marine One" on its way to Walter Reed Hospital (on Friday, Oct. 2, with patient Donald Trump on board): "Sicker than was officially admitted." Foto: POLARIS / laif


In March, Trump openly admitted to investigative reporter Bob Woodward that he was well aware of the dangers of the pandemic and that he had deliberately trivialized them. "I wanted to always play it down, because I don’t want to create a panic,” Trump said. 

Citing legendary British Prime Minister Winston Churchill, Trump is still trying to sell that today as the responsible approach of a far-sighted leader. More likely, though, is that Trump was merely worried about what the disease could do to the economy and how it might affect his prospects for re-election.

Instead of doing all he could to contain the virus, as Churchill certainly would have done, Trump continued to downplay its effects in the hope that more positive messages would somehow keep the economy afloat. 

The Washington Post sifted through Trump’s appearances and statements for remarks that trivialized the coronavirus and found 138 such statements between January and today. Thins like: "It’s going to disappear. One day, it's like a miracle, it will disappear."

But that miracle isn’t going to happen. Instead, a brutal reality is unfolding in the U.S., one that is partly due to the White House’s failure to implement a disease-prevention policy. According to one study, tens of thousands of lives could have been saved in the U.S. if a mask requirement had been introduced on April 1 for restaurant and retail employees.

Absurd Consequences

Instead, Trump continues to mock people who wear masks. Early on in the pandemic, he once said: "I don’t know, somehow sitting in the Oval Office behind that beautiful Resolute Desk — the great Resolute Desk — I think wearing a face mask as I greet presidents, prime ministers, dictators, kings, queens, I don’t know. Somehow, I don’t see it for myself.”

Such statements set the tone.

The president continued to set a bad example and defined the attitude that was expected of hardcore Republicans. Instead of following the advice of his experts, who had been recommending that masks be worn since April, Trump managed to turn masks - an effective measure in combatting the pandemic – into a partisan issue.

The absurd consequences can be seen today in America: Whereas few people go out into the streets without a mask, let alone enter a restaurant, in Democratic strongholds like Washington, D.C., or New York, in Republican America, a hearty handshake without a mask is considered a sign that a person hasn’t somehow been misled by the liberal wimps on the East and West Coasts.

Under Trump’s leadership, the latest COVID hotspot is the White House, which has been largely abandoned since last week. The majority of the hundreds of employees who come to the office on normal days are now in quarantine or are working from home.

After the second in command of the U.S. Coast Guard tested positive, almost the entire senior military leadership, the Joint Chiefs of Staff, including the country’s top military leader, Mike Milley, had to go into quarantine on Tuesday for safety reasons. 

By Thursday, at least 20 people from the inner circle of Donald and Melania Trump, both of whom have COVID-19, had tested positive for the coronavirus, including many close advisers to the president. That, too, is Trump's responsibility.


Biden supporters in Miami: One overview of polls shows Trump trailing his Democratic opponent by 12 points Foto: Chandan Khanna / AFP


In the months since the outbreak of the pandemic, Trump has created an atmosphere in the White House in which mask wearers are made to look like borderline traitors, politically correct wusses. 

Among the few who resisted Trump’s dictate were Matthew Pottinger, a former reporter for the Wall Street Journal and current security adviser on China issues, and Olivia Troye, who was part of the coronavirus task force led by Vice President Mike Pence until August, when she resigned in frustration. "You were looked down upon when you would walk by with a mask,” Troye told the New York Times.

Meanwhile, Mitch McConnell, the Republican majority leader in the Senate who has been loyal to Trump throughout has now distanced himself from the president on masking up. 

"I actually haven’t been to the White House since August the 6th,” he said on Thursday, "because my impression was their approach to how to handle this was different than mine and what I insisted that we do in the Senate, which is to wear a mask and practice social distancing.”

Error-Prone Tests

In September, the president once address a reporter with the news agency Reuters by saying, "If you don't take it off, you're very muffled. So, if you would take it off, it would be a lot easier.” At the same time, Trump convinced himself and his people that everything was safe because the White House had a rigid testing regime.

There was indeed a lot of testing, but they relied on an error-prone rapid test. And the only staffers who received daily tests were those who came in direct contact with the president. 

In retrospect, the infection control plan concocted by the White House seems about as sophisticated as something a child would conceive. It didn’t work. By July, when National Security Adviser O’Brien was infected, it became clear how far the virus had already advanced into the core of the government in Washington.

With liberal Washington residents growing increasingly cautious, the White House was starting to look more like a clubhouse of corona-deniers in the administration. Trump Press Secretary Kayleigh McEnany gave almost daily press conferences in which the symbolism could not have been any clearer: 

In the White House Press Room, reporters wore face masks and plastic gloves, but at the podium stood a spokesperson who seldom appeared with a mask. McEnany is now among those infected.

President Trump with coronavirus advisers (taskforce cordinator Deborah Birx and Anthony Fauci): In Trump's world, there is no such thing as reliable information. Foto: Jabin Botsford / The Washington Post / Getty Images


It is quite possible that she, like several others apparently, became infected at an event on Sept. 26, at a time when Trump - initially imperceptibly – began losing control over his own messaging. On that Saturday, the president proudly presented jurist Amy Coney Barrett as his nominee for the Supreme Court vacancy left behind by the death of Ruth Bader Ginsberg. 

Ironically, Trump and his strategists saw the Rose Garden gathering as a way of finally changing the subject away from the infuriating pandemic and replacing it with a success story. But the plan backfired.

The garden party soon ended up in the headlines for other reasons. Before long, guest after guest began receiving a positive coronavirus diagnosis. Republican Senators Mike Lee from Utah and Thom Tillis from North Carolina came down with COVID-19, as did close White House adviser Kellyanne Conway and former New Jersey Governor Chris Christie, who had helped Trump prepare for his first debate.

White House Rejected Contact Tracing

There is no incontrovertible proof that they became infected in the Rose Garden, and it is likely that we'll never know for sure, but photos of the event show guests embracing and exchanging pecks on the cheek. 

Nevertheless, when the Centers for Disease Control (CDC) offered to take over contact tracing for White House staffers who had become infected, it was rejected. The White House, it seems, prefers not to know.

What is clear, however, is that Trump will stop at nothing for a good show, even if it puts lives at risk. That may sound polemical, but it’s really just an accurate description of reality. 

When the president held a campaign rally on June 20 in a Tulsa, Oklahoma, sports arena, he did so without any apparent considerations for hygiene or pandemic prevention measures. 

Thousands of Trump supporters crammed into the arena as though there was no pandemic at all, even though the U.S. president has known for months that the potentially deadly virus can be transmitted through the air.

Indeed, each of the rallies he has held in recent months was little more than a lunatic experiment in the heart of a pandemic hotspot - likely with deadly consequences. In Oklahoma, former Republican presidential candidate Herman Cain was in the audience. 

Like the vast majority of those present, he was wearing no mask. Sitting shoulder-to-shoulder with other Trump fans, Cain wrote on Twitter: "Having a fantastic time." 

Nine days later, the 74-year-old tested positive for the coronavirus, and four weeks after that, he was dead, having succumbed to complications from the infection. It is impossible to know for sure if Cain contracted the virus at the Trump event in Tulsa. 

But it is all but certain that the infection numbers in the city jumped in part because of the event – at least according to the city's top health official.

Nevertheless, Trump showed no indication that he might be willing to forego such large events. On the contrary, he continued making almost daily appearances before live audiences, both large and small, right up until last Friday, when he announced his and Melania's coronavirus infections on Twitter. 

It was almost as though he thought the laws of virology didn't apply to him and his supporters.

Criminal Negligence?

Even the day before he announced his positive test result, Trump played host at his golf club in Bedminster to around 200 wealthy donors, who paid several thousand dollars – even up to $250,000 – to dine and speak with the president and get their picture taken with him. 

Doing so, of course, was much more dangerous than they likely knew, and they certainly would have heard nothing about their potential for exposure from the White House.

After all, the president already knew by the time he arrived in Bedminster that Hope Hicks, a senior Trump adviser, had become infected with the virus, one of the first positive cases in the president's inner circle. 

They had been traveling together in Minnesota that Wednesday when Hicks began showing symptoms. On the flight back to Washington on Air Force One, Hicks reportedly isolated herself from the others.

Is the U.S. president a superspreader? Can one accuse him of criminal negligence for causing bodily harm? It is almost impossible to comprehend that the White House has shown zero interest in learning more about the outbreak in the innermost circle of power – that it isn't even clear when Trump actually came down with the virus.

All of the information provided about the world's most famous COVID-19 patient has been imprecise and contradictory – potentially also edited for political messaging. 

When Trump was sent to the hospital, his own chief of staff, Mark Meadows, described his condition as being much more critical than did his doctor, who said the president was exhibiting only mild symptoms. In Trump's world, there is no such thing as reliable information. 

Clemens Wendtner, chief physician at München Klinik Schwabing, a hospital in Munich, believes that he was "sicker than was officially admitted." It is a belief that seems confirmed by the list of medications that Trump was given. 

The antibody cocktail from the pharmaceutical company Regeneron that was administered to the president hasn't even been approved yet, with studies continuing into its efficacy and safety. 

The fact that his doctors were ready to prescribe him the medication despite the possible risks involved, and that he was apparently willing to try it out, would seem to indicate that his condition was more critical than the White House has been willing to admit.

The second medication he was prescribed, remdesivir, which inhibits viral replication, also hints at a more serious infection than has been publicly described. In the U.S., the intravenously administered drug is only approved for patients who have been hospitalized. 

Studies have shown that the drug has been able to speed up recovery times from 18 days to 12 days among severely ill patients receiving oxygen. For those with light symptoms, by contrast, the drug has no effect.

Medical experts are furthermore unsettled by the fact that Trump also received dexamethasone. "Dexamethasone primarily helps COVID-19 patients who are seriously ill," says Torsten Feldt, infectiologist and chief physician at the University Hospital of Dusseldorf. 

With less serious infections where supplemental oxygen isn’t necessary, it can even be harmful, he says. The drug inhibits the body's immune reaction, thus preventing a cytokine storm, the harmful overreaction of the immune system that is the cause of death for many COVID-19 patients.

The fact that Trump received this drug relatively early in the course of the disease and without having been placed on a respirator led to a fair amount of speculation among doctors. Did he perhaps contract the disease much earlier than claimed? 

Did he secretly receive oxygen? Or was Trump prescribed the medication to make him feel better so he could get back on the campaign trail more quickly?

One well-known side-effect of dexamethasone is the - at least temporary – improvement of the patient's mood and general feeling of well-being. "You can get almost any patient out of bed for a short time with dexamethasone," says Wendtner. 

"We call it the Lazarus effect." He says he has also heard from his own patients that the drug makes them feel 20 years younger, as Trump himself tweeted from the hospital. "The drug elevates your self-esteem," Wendtner says. Coming down, though, is more difficult, he adds.

Trump Has Badly Miscalculated

But as uncertain as the true state of Trump's health may be, experts are united in their verdict concerning the president's catastrophic pandemic response. The well-respected New England Journal of Medicine even broke with its 208-year tradition of refraining from political commentary. 

In the most recent issue, the journal's editors harshly criticize America's "current political leaders." Without explicitly naming Trump, they take the kid gloves off, writing: "Anyone else who recklessly squandered lives and money in this way would be suffering legal consequences."

Trump, the sick man of the White House, has apparently badly miscalculated as his term comes to an end. His strategy of presenting himself as the virile antithesis of challenger Joe Biden has disintegrated. 

Events, after all, have now clearly proven the propriety of the campaign strategy chosen by Biden, who has largely campaigned by video from his Delaware home since the beginning of the pandemic and has only reluctantly taken part in live events.

His was the rational, proper response to a deadly pandemic. Trump's attempts to paint Biden's behavior as proof of his weakness have boomeranged. Instead, it is Trump himself who now looks irresponsible and irrational, while "Sleepy Joe," in Trump's parlance, looks trustworthy and reliable.

Many of Trump's histrionic appearances now appear in a different, more malicious light. The fact that he broke with tradition by using the White House as the backdrop for his Republican convention propaganda show in August remains unforgotten. 

Now, though, it is all the more apparent that he - just as he did during the announcement of his Supreme Court nomination of Barrett 14 days ago – unnecessarily put the lives of many people at risk. How can someone serve the public good when he doesn't even care about the health of those closest to him?

Trump had plenty of opportunities to prevent this impression and to get a better handle on the pandemic. The Centers for Disease Control has for decades been the gold standard when it comes to fighting epidemics worldwide, and Anthony Fauci, head of the National Institute of Allergy and Infectious Diseases, enjoys widespread respect from both sides of the political spectrum.

Indeed, Fauci would be a gift to any president finding himself faced with a dangerous pandemic; his expertise as a virologist is undisputed. Early on in his career, he developed a therapy for deadly autoimmune diseases, and in the 1980s, he was one of the leading scientists in the effort to better understand HIV. 

More than anything, though, the 79-year-old has the ability to produce simple and useful explanations for complicated medical issues.

Early on in the coronavirus pandemic, Fauci spoke with Trump almost daily, and during his appearances with the president, his message was the same as that being communicated by virologists around the world: keep your distance, wash your hands and limit contact with others. He also warned against the premature resumption of normal day-to-day activities.

But his support for even these obvious precautions was enough to get on Trump's bad side. In April, the president retweeted a post written by a failed Republican Congressional candidate that included the hashtag #FireFauci. 

In mid-July, a memo from the White House Press Office was leaked which described how best to discredit Fauci in public. It made it look as though the president wasn't waging war against the virus, but against logic and those who would espouse it.

Breathtaking Irresponsibility

Trump still hasn't dared to fire Fauci, likely because he still has enough political instinct to understand that getting rid of a scientist who has served under six presidents wouldn't be the best look for him. 

But his treatment of the expert virologist has reflected the full breadth of Trump's breathtaking irresponsibility, his inability to set the right priorities and his jealousy of anyone and everyone with whom he must share the spotlight. 

Ever since he himself has contracted COVID-19, it has become more apparent than ever that the president is completely lacking in rationality and possesses no compassion whatsoever. Despite spending his days posting a constant stream of vitriol on Twitter, he has yet to find any words of comfort for the many people in his orbit who have become infected - who he, himself, may have infected. 

Trump knows only all-caps and exclamation points, but it seems that an increasing number of people are no longer buying what he is selling.

Perhaps he has made a few too many empty promises. He can, of course, make the argument that his Democratic enemies bear responsibility for the fact that his highly vaunted wall on the border with Mexico was neither paid for by Mexico nor really completed at all. 

But the fact that there likely won't be a vaccine against the coronavirus prior to the election despite Trump's oft-repeated pledges to the contrary isn’t helping his chances.

Trump's most recent effort to heap pressure on the Food and Drug Administration to loosen its standards for approving vaccines came in the middle of this week. Really, though, nobody but Trump wants to see such a development, not even the pharmaceutical industry. And the FDA rejected Trump's call and reiterated its commitment to long-established practices.

In such situations, Trump seems like the perfect poster boy for what scientists have dubbed the Dunning-Kruger effect, which describes the phenomenon of incompetent people vastly overestimating their abilities due to their own inability to recognize their incompetence. 

Trump provided a fantastic example during his debate with Biden, when he once again claimed that a coronavirus vaccine would soon be available. When debate moderator Chris Wallace confronted the president with the fact that CDC Director Robert Redfield didn't agree and believes that a vaccine will only be widely available in the middle of next year, Trump responded: "I disagree."

The consequence of such hubris can be seen in the current pandemic statistics. There are around 40,000 new coronavirus cases each day in the United States, with roughly 700 daily COVID-19 deaths. In over 20 states, the trend is moving in the wrong direction.

Such numbers are horrific, and even worse for Trump is the fact that his policies haven't just managed to make the pandemic worse. He has also been unable to get the economy going again, a rather significant blow to his self-spun legend of being a business genius. There have been no winners in the Trump presidency, only losers – and that likely applies to him personally.

Losing Ground

Even before his illness and the heavy drugs he has had to take as a result, the president's Twitter eruptions had long seemed to hint at a somewhat tenuous relationship with lucidity. Nevertheless, a tweet from this week was especially egregious – one that temporarily sent the stock market reeling and provoked an immediate and stinging rebuke from industrial leaders and from his own party. In the tweet, Trump announced that he was suspending negotiations with the Democrats over an additional coronavirus aid package worth around $2 trillion. The precise total was still up for debate, but not the basic necessity of the state help.

Trump's strategy of presenting himself as the virile antithesis of challenger Joe Biden has disintegrated.

It was a major political misstep, one which Trump then sought to correct a few hours later - again via Twitter. The episode made it look to all the world as though Trump was no longer in full possession of his faculties. Indeed, his chances for re-election seem to be shrinking by the day, unless something happens at the last moment to reverse the trend.

Perhaps the most unsettling development for the incumbent is that he has been losing ground in the northern states of Pennsylvania, Michigan, Wisconsin and even Ohio, exactly the states where he won the election four years ago. It isn't even certain that he will be able to win Georgia, a state that the Democrats last won fully 28 years ago, back when the candidate was named Bill Clinton.

The first televised debate was a disaster for Trump, and he has raised the possibility of declining to participate in a second debate. With the debate commission having announced its intention to hold the second debate via video link, Trump told Fox anchor Mario Bartiromo on Thursday morning that he wouldn't "waste my time on a virtual debate" given that moderators could cut off his microphone at any time.

He sounded manic in the interview, expressing displeasure with FBI Director Christopher Wray and Attorney General William Barr, accusing them of not doing enough to combat alleged mail-in voting fraud – which Trump has been harping on about for months, despite there being no evidence that it is a significant problem – and of not taking action against his political opponents. He finished off the interview by calling for charges to be filed against Hillary Clinton. It is almost as though Trump is still stuck in 2016 when he was running against her.

In his efforts to turn his re-election campaign around, Trump really can’t go any lower. 

He has even tried to emulate Brazilian autocrat Jair Bolsonaro, who tried to use his own experience with contracting and then recovering from COVID-19 as some kind of proof that fear of the virus was badly exaggerated. But the numbers in the U.S. disprove this narrative so clearly that Trump's attempts to sell it look increasingly divorced from reality.

The majority of Americans have long been of the opinion that their president has proven to be an inadequate manager of the crisis. The fact that he has now become infected has only solidified that impression. And the number of his detractors has recently risen even further: 

According to a survey conducted by CNN, two-thirds of people in the U.S. believe that Trump has been irresponsible in handling the risk of infecting others around him with the coronavirus. Woman and elderly voters are particularly disappointed in Trump, groups from which he needs support if he wants to be re-elected.

The president's poor survey results are hardly surprising. In the past several months, Trump has acted as though the virus couldn't harm him. His ridicule of Biden and the mask-wearing Democrats has always been informed by the rather ridiculous notion that the illness could be held at bay by strength of will. 

His own bout with COVID-19 has revealed such nonsense for what it is. And many Americans also saw the video from Monday showing Trump gasping for breath after climbing the few steps to the Truman Balcony.

He didn't look much like a winner. Nor like an American president, for that matter. 

The Core of the ECB’s New Strategy

Now that the European Union has committed to achieving net-zero carbon emissions by 2050, the European Central Bank must start preparing for the structural shifts that lie ahead. In a world where governments want the prices of certain forms of energy to rise, the concept of price stability becomes more complicated.

Hélène Rey


LONDON – Following in the footsteps of the US Federal Reserve, the European Central Bank has launched an in-depth review of its monetary-policy strategy. But as central banks contemplate fundamental changes in their approach, they should be mindful of possible disruptions in their operational environment.

Nowhere is this truer than in strategies to address climate change, one of the most important issues of our time. Since European countries have pledged to make their economies carbon-neutral by 2050, the ECB now must reflect on how its monetary-policy framework could help with that transition.

Although the Treaty on the Functioning of the European Union makes maintaining price stability the primary objective of the European System of Central Banks, it also states that, “Without prejudice to [that] objective, … the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union.” 

According to Article 3, the Union “shall work for … a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment.”

Obviously, a decarbonized economy cannot be achieved without profound structural changes. Here, the COVID-19 crisis has provided a reality check. While the International Monetary Fund estimates that the pandemic will reduce global GDP this year by about 4.9%, the International Energy Agency anticipates an 8% global reduction in carbon dioxide emissions. 

Yet emissions reductions of that magnitude must happen every year between now and 2030 if we are to have any chance of keeping global average temperatures within 1.5°C of pre-industrial levels.

In addition to the human toll, the global recession has imposed an enormous burden on public finances, threatening young people’s education, as well as the gains made by women and developing countries in recent decades. 

The upshot is that climate change cannot be addressed by simply reducing economic activity; overhauling existing production systems will be absolutely necessary. The only way to achieve net-zero emissions by 2050 is to transform how we produce, transport, and consume.

One of the most efficient ways to do this – and perhaps the only way – is to increase the price of carbon while accelerating the pace of technological innovation. But this approach inevitably would trigger significant supply shocks. 

The cost of inputs, particularly energy, would become more volatile as the price of carbon rises and renewables gradually replace fossil fuels. And, beyond energy, transportation and agriculture also would be subject to large, potentially disruptive changes in relative prices.

Whatever monetary framework central banks settle upon, it will have to be able to accommodate the large structural shifts and relative-price effects ushered in by decarbonization. Because it is not possible to maintain a constant rate of increase across all prices, the question for monetary policymakers will be which price index to stabilize.

Under the current framework, the ECB targets eurozone inflation by way of the Harmonized Index of Consumer Prices (HICP). But this index includes energy prices, making it ill-suited for the decarbonization challenge. With inflation in carbon prices having been engineered by EU policymakers, the ECB should not try to force down other prices in the HICP when the relative price of energy rises, as that would create even greater distortions.

The unavoidable conclusion, then, is that the ECB will have to abandon the HICP index and use core inflation indices that exclude energy and food prices. The reason is not just that core inflation is a more reliable indicator of the lower-frequency component of inflation. 

Rather, it is that monetary policymakers will need to distinguish between price changes that are occurring for good reasons (as a result of desirable structural changes) versus price changes that indicate a temporary imbalance between supply and demand. The ECB should seek to minimize only the latter category.

True, it is sometimes argued that central banks should target consumer price indices like the HICP because these better reflect purchasing power and make policy decisions easier to explain. Yet recent surveys show that the current framework already is not well understood by the public.

Clearly, central banks need to improve their communication policies. But it is not obvious that targeting a core price index that has been purged of energy prices would be any more problematic than the current approach when it comes to communicating with the public. And it should be even less problematic for experts who follow monetary-policy issues closely.

Beyond changing its target price, the ECB could also consider reforms to make its framework more robust against supply shocks. One option is to target a path for nominal GDP, so that cost-push shocks accompanied by economic slowdowns do not trigger unwanted interest-rate increases. 

In a post-pandemic environment where nominal debt levels will be high for a long time, it would be problematic to have to tighten monetary policy just because an adverse supply shock pushed inflation past 2%. 

If real (inflation-adjusted) GDP growth were subdued, monetary tightening could destabilize debt dynamics and lead to dramatic consequences.


Hélène Rey is Professor of Economics at the London Business School and a member of the Haut Conseil de Stabilité Financière.