The geopolitics of 5G

America’s war on Huawei nears its endgame

In Europe, however, there exists a mixed response to the Chinese telecoms-equipment giant

On may 15th the American government announced a startling escalation in its campaign against Huawei, a Chinese company which is the largest provider of telecoms equipment in the world. American politicians and officials have long expressed concerns that mobile networks which rely on Huawei could allow snooping and sabotage by China.

In May 2019, citing alleged violations of sanctions against Iran—charges Huawei denies—America used powers designed to stop the transfer of military technology to bar the company from receiving American components vital to the systems it sells.

Those measures had loopholes: suppliers could keep on selling Huawei many components as long as they were made in facilities outside America. So this year America targeted the whole supply chain: as of September it will be seeking to stop companies around the world from using software or hardware that originally comes from America to manufacture components based on Huawei’s designs.

The move was a serious blow to the company. It may well have brought a sigh of relief in Britain. In January Boris Johnson, the British prime minister, had approved a substantial if clearly demarcated role for Huawei in Britain’s 5G telecoms infrastructure.

Its promise of a faster, more commodious type of mobile broadband that allows completely new internet applications and might prove necessary for self-driving cars has made 5G a touchstone for seers scrying the next big thing and for politicians who pay heed to them. Infrastructure spending stamped with such a hallmark of futurity is right up Mr Johnson’s alley.

If Britain’s existing procedures for overseeing Huawei’s role in telecoms infrastructure were applied, the government argued at the time, Huawei’s equipment could be used in “non core” parts of the network, and Britain could get its 5G systems up and running considerably sooner, and cheaper, than would otherwise be possible.

This decision was unpopular both with the White House and with a significant faction within Mr Johnson’s Conservative Party, with the opposition happily backing the rebels. Dismay over China’s imposition of new security laws on Hong Kong, in breach of the agreement under which the territory was handed back to it, heightened feelings further. America’s new salvo of sanctions provided a plausible reason for changing course.

The inevitable dislocation to Huawei’s supply chains, the government said, would make relying on the company riskier. The new measures also meant that the vaunted system whereby British spooks vetted Huawei equipment would no longer be able to do its job: it would itself fall foul of the American sanctions.

On July 14th the government said it will ban mobile-network operators in Britain from buying Huawei equipment for their 5G networks, and told them to remove equipment already installed by 2027.

Well before that—by the time of the next election, in 2024—the country would be on an “irreversible path” to expunging the Chinese firm from its networks, said Oliver Dowden, the culture secretary.

Mr Trump immediately took credit for having “convinced many countries” not to use Huawei.

While some have been on board for a while—Australia banned Huawei 5G equipment in 2018—others have moved more recently.

In June telecoms companies in Canada and Singapore announced plans for 5G networks built around equipment provided by Huawei’s main rivals, Ericsson, a Swedish firm, and Nokia, a Finnish one (see chart 1).

In both cases Huawei had previously been a possible provider. On July 6th the head of the French cyber-security agency advised network operators which do not currently use Huawei not to plump for it in future.

Now all eyes are on Germany, which has said it will decide on the matter in the autumn. If it follows America’s urging and Britain’s example then the rest of the eu will probably go the same way, and a significant corner will have been turned.

Western communications systems will be a bit less insecure. America will have used its sovereign might to humble one of China’s national champions, and China will doubtless be responding.

The technophilic imperative that has made 5G a totem of the fully networked future will have had its momentum checked, at least a little, by a mixture of countries not wanting to upset America and being willing to upset a China they find increasingly disturbing.

The last domino

Perhaps most profoundly, such a change may leave behind it a world where governments are less willing to depend on companies from countries with divergent interests to supply capacities they deem strategic.

“At the heart of this is a dilemma which the West has not faced before: how to cope with a technology superpower whose values are fundamentally opposed to our own,” in the words of Robert Hannigan, a former boss of gchq, the British signals-intelligence agency.

Germany’s decision is not a done deal. Deutsche Telekom (DT), a 32%-state-owned company, is the country’s largest mobile provider and already relies heavily on Huawei equipment. It has lobbied strongly against any action that would make it harder for it to roll out 5G.

The Ministry of Economic Affairs, often eager to defend the interests of German industry, has backed the firm. Angela Merkel, the chancellor, has not wanted any trouble with China (see Europe section).

Yet, like the British Conservatives, Mrs Merkel’s Christian Democrats have split on the issue.

As Norbert Röttgen, a conservative member of parliament and one of the leaders of the anti-Huawei faction, has put it, “We cannot trust the Chinese state and the Chinese Communist Party with our 5G network.”

The Social Democrats, who are part of the governing grand coalition, and the opposition Greens are also opposed to letting Huawei play.

“If there were a vote in parliament today, Huawei would lose,” says Thorsten Benner of Global Public Policy Institute, a think-tank based in Berlin.

Mrs Merkel, who will make the final decision, has so far been circumspect. She says she does not want to exclude a company on the basis of its nationality and that any firm that complies with certain security standards should be allowed to sell its wares in Germany.

In late 2019 China’s ambassador in Berlin threatened retaliation against German companies should the government exclude Huawei from its 5G plans, and insiders say it is a threat the chancellor takes seriously. Meanwhile, dt is busily creating the aura of a done deal.

It intends to provide basic 5G services to 40m Germans by the end of this month using equipment from both Huawei and Ericsson, though users will see little benefit at this stage.

The company has also decided to intensify its co-operation with the Chinese firm in cloud computing and other areas.

There are many reasons for Europeans to be uncomfortable siding with America. Having missed the boat on the rise of consumer tech—Europe still bemoans the lack of the home-grown Google or Amazon—European politicians fear falling further behind if they delay 5G and the various wonders it is held to enable, such as an “internet of things”.

Mobile-network operators play up these fears, with an eye to either keeping their ties to Huawei or receiving some form of compensation if it were to be proscribed. By combining direct costs with estimates of lost GDP they argue that ditching Huawei will cost the continent tens of billions of euros.

Regulators and independent observers are not convinced. Mr Dowden, admittedly an interested party, put the impact of Britain’s volte-face at two or three years’ delay and £2bn or so. A study by Strand Consult, a research outfit, thinks that the cost of eschewing Huawei would be quite modest for Europe as a whole, given that its ageing 4G kit would soon have to be replaced anyway.

It estimates a total of around $3.5bn, no more than $7 per mobile customer.

That said, not all European mobile-phone customers will get the same deal. The EU has failed to create a single digital market; an operator in Poland cannot sell services to a customer in Sweden in the same way New York-based Verizon sells to Californians.

So where China and America have three network operators each, Europe has more than 100 (see chart 2).

In some markets, such as Belgium, Germany and Poland, the local companies are highly reliant on Huawei; companies in Finland, Ireland and Spain would face much lower costs if forced to make the switch.

Shrunken titans

The multiplicity of operators is a function of eu policy. Denied a continent-wide framework that would let them compete in far-off markets, telecoms companies are also kept from consolidating at home; the eu commission likes there to be four providers in each market. The resultant competition provides a stonking deal for customers.

In Europe the average revenue per mobile-phone user is less than €15 ($17) a month. The average American user pays more than twice that. Rewheel, a data company, says that the cheapest unlimited-data plan in America costs €74 a month. In Germany the figure is €40, in Britain €22.

For network operators this fierce level of competition, coupled with the high costs of comparatively small, unconsolidated markets, constitutes a serious drag. Some carriers, including dt and Vodafone, a British operator, have returns on capital lower than their costs of capital: not the kind of business model that will find willing shareholders in the long term.

Emmet Kelly of Morgan Stanley, a bank, points out that the market capitalisation of Europe’s major operators has shrunk from over €1trn in June 2000 to €258bn this June—a loss of 81% in real terms. Telefónica of Spain and Orange in France, once giants, are now not much more than minnows.

Mobile-network operators have long complained to the commission that the thin margins which scare away investors leave them unable to splash out on upgrades such as 5G, and that as a result Europe will fall behind its peers.

China is investing massively in 5G and America is intent on keeping up; Mr Trump has called 5G “a race America must win”. The GSMA, which represents mobile-network operators, says that by 2025 half of all mobile users in America and the richer bits of Asia (including China) will be on 5G, compared with just one-third of Europeans.

In the past, Brussels has turned a deaf ear to such griping. The eu’s download speeds have remained comparable to those in America; the price of data services has fallen even faster than usage has grown: what’s the problem?

But it is possible that a ban on Huawei could catalyse the “new deal” on regulation that the operators crave. Governments which realise that their actions are delaying 5G and driving up its costs might see their way to easing merger restrictions.

The spectrum needed for mobile services, which in Europe is often sold through auctions designed to maximise revenue, might be given away instead, as happens in China and Japan.

The lobbyists’ list is long. The industry takes courage from last year’s appointment of Thierry Breton, who was once boss of France Télécom (now Orange), as commissioner for the internal market.

Pending such a deal things might just slow down. There is already agreement among analysts that despite the hoopla 5G networks will be rolled out more slowly than the previous 4H ones were.

This year’s 5G-spectrum auctions in France, Spain and Poland have been delayed by the covid-19 pandemic, which may quietly suit some operators.

The equipment needed for 5G is only going to get cheaper and more reliable, as all chip-based kit does.

To the extent that there is indeed a race, it will not necessarily be won by those who get off to the fastest start. The services on offer so far are mostly just a faster version of 4G, and sometimes in practice the speed is not all that great.

The most revolutionary aspct of 5G technology—the way in which it allows the workings of a network to be reconfigured through software and thus tailored to specific needs—will need years to come into its own. Profitable business models will take time to emerge.

A continent of its own

A slower roll-out might also ease pressure on Ericsson and Nokia. The two Nordic companies will plainly benefit from countries turning away from Huawei, even if, as looks likely, they lose sales in China. They are precisely the kinds of industrial champion Europe is trying to promote these days, but there are worries about whether they can seize the moment.

They now enjoy a duopoly in America (for a while there was talk of an American company taking a stake in one of them, but this idea seems to have been put aside). Some operators question whether, given those commitments, they can meet the needs of a Huawei-free full-speed-ahead Europe too.

There is also the awkward fact that, supply chains for electronics being as they are, using European system integrators still means that much of the equipment comes from China.

The difficulties of having only a few suppliers will subside in time. Samsung of South Korea, a country very committed to 5G, is a growing presence. On July 15th Reliance Industries, an Indian conglomerate, announced that its Jio network, which uses a Samsung 4G network, will be building its own 5G infrastructure and selling it to others.

Jio is likely to follow in the steps of some other carriers, most notably Rakuten Mobile in Japan, which are betting on networks based on advanced software, off-the-shelf hardware and open standards, thus side-stepping the need for systems integrators like Ericsson, Huawei or Nokia. Widespread implementations are still several years away, though.

Chinese reprisals against countries chucking out Huawei can be expected to come around a great deal sooner. China buys a lot from Europe, with Germany its largest trading partner in the bloc. It also invests quite heavily in the continent, having been courted by many of its leaders. Some of that may now be at risk.

On the day of Britain’s u-turn the Chinese ambassador to London, Liu Xiaoming, tweeted that it was “disappointing and wrong”. China is painting the decision as a groundless capitulation to anti-Chinese pressure from America, and saying it calls into question the safety of Chinese investments in Britain, which are many and various.

But Europe does not see China exclusively through a commercial lens. Last year eu leaders designated it a “systemic rival”. The EU has since been working to limit Chinese state-backed groups’ operations in Europe.

Its treatment of the Uighur minority, its reluctance to see word of covid-19 spread to the world and its move on Hong Kong have all raised hackles.

That does not mean Germany, or Europe as a whole, will necessarily ditch Huawei. Europe’s China links matter, and it does not like being pushed around by America. Policymakers on the continent have long fumed at the financial muscle that allows American administrations to punish European firms it sees as miscreants by squeezing the banks those firms deal with.

But that does not mean it wants its internet infrastructure under the control of a third power that might, in time, aspire to use that control against it. A continental security official points out the underlying irony: “America wants to prevent China being able to do what America currently does to the rest of the world by controlling the financial system.”

The irony, though, does not invalidate the argument. Europe has sometimes acted to maintain its technological autonomy with respect to America in areas where national-security needs and civil infrastructure overlap, such as satellite launchers and navigation systems.

In an interview with The Economist last November Emmanuel Macron, the French president, complained about European reliance on American tech platforms.

At the same time he called development of 5G “a sovereign matter” and went on to say that “Some elements [of the 5G network] must only be European.” That did not in itself rule out any role for Huawei.

But subsequent developments have pushed the continent further in that direction. American pressure may end up seeing Europe take a more assertive view of its “digital sovereignty”.


Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

In this second part of our research into what we believe is the US pending real estate collapse, we’ll explore more data supporting our expectations. In the first part of this article, we highlighted the Case-Shiller data showing home price levels had already exceeded 2006-07 levels and how earning levels have collapsed after the COVID-19 virus event. 

 Our research team believes thee extremely high price levels, combined with the uncertainty of future earnings, unemployment, layoffs, and other economic contractions will result in a late 2020 or early 2021 shift in the residential real estate market.

We already know that commercial real estate has experienced one of the worst declines in decades. Delinquencies have skyrocketed and thousands of US businesses have entered bankruptcies. 

Main street and consumer services sectors will likely continue to feel the pain related to the post-COVID-19 economy for many months still. The question before all investors should be “how will the price levels reflect the changes in earning and economic data throughout this transition?”

Our research team believes the contraction in earnings for the consumers as well as the extended unemployment levels will present a very real potential for future foreclosures and delinquencies in the residential real estate market. We believe this process will begin to become noticeable approximately 6+ months after the COVID-19 shutdowns started – sometime near August or September 2020. 

Once the destruction of earning levels properly reflects into the economic cycles and banks tighten lending opportunities, the scale of capable buyers will shrink at a time when home inventories may begin to skyrocket – very similar to the 2008-09 credit crisis.

Ever since the lower interest rates pushed mortgage levels below 3%, residential home sales have been booming. This is likely because people in cities are wanting to move out of the city and into the suburbs for a healthier and less compacted lifestyle. Additionally, many of these more rural areas present better home price levels and more value for people selling urban real estate.

Another aspect of this boom in rural home sales is that people wanted to escape the trap of the city and move to locations where they have more room and more ability to “live off the property instead of living off the supermarket or local outlets. This process of urban escape could take many months or possibly years for qualified sellers to relocate out into the more rural areas. The point being that urban real estate values may dramatically decline as a result of the mass exodus from the cities that are currently taking place.

US manufacturing continues to decline year over year which indicates that manufacturing jobs and output is far from recovering. If we attempt to read between the lines, it suggests that one of the most important aspects of any economic recovery is still showing -10% year over year contraction. This suggests a longer recovery process for manufacturing output and jobs.

(Source: )

US retail sales have also collapsed over the past 3+ months. Although one could argue that e-commerce sales have made up for these losses, one has to understand that retail sales within the US employs a host of other people that support local and regional stores. Sales clerks, managers, warehouse, delivery and shipping and other positions that would normally be associated with retail or retail services have contracted by as much as 10 to 15% (or more) over the past 3+ months.

Additionally, consumer activity, which includes retail sales and retail services, makes up more than 80% of the US GDP levels. If manufacturing and retail/consumer activity levels have dropped by 10% to 15% or more over the past 3+ months and will continue a slow recovery process lasting many months, we believe the eventual shift and contraction in the real estate market could present a lasting collapse in prices for many urban and outlying areas.

(Source: )

Our researchers believe the Real Estate ETFs may experience a 20% to 40% decline over the next 3+ months as the reality of the urban exodus hits. Cities like Miami, Los Angeles, Chicago, San Francisco, and dozens of others may see a dramatic decrease in demand as buyers focus on more rural areas and the new “work from home” environment. 

We’re already seen some evidence from discussions with local real estate professionals that a shift in buying interests is taking place. Now, we are watching the middle and upper scale real estate markets in urban areas to confirm our hypothesis.

Once we start to see price decreases in larger urban areas (like Los Angeles, New York, Miami, and other areas), particularly in the condo and apartment sectors, we’ll know the shift in buying is taking place. We believe condos and apartments will be one of the first sectors hit as well as middle and upper scale real estate. We are also watching the foreclosure and auction data to determine if and when new waves of defaults start to hit the marketplace.

After stating what we believe to be a factual interpretation of the current real estate marketplace and the transition that is taking place, we believe the real shock will come to some of the hottest urban markets in the US and abroad. We believe areas like Miami, New York, Los Angeles, Seattle, Portland, and others will experience a sudden lack of demand which will translate into decreasing price levels and sales activity. 

The COVID-19 virus event has suddenly prompted people to realize the urban lifestyle if fraught with some risks that are partially negated in a rural environment and away from the packed and busy cities.

If our research is correct, there is a very real opportunity for skilled technical traders to take advantage of the next downside price wave in IYR and REM. We believe a 20% to 40% price contraction will take place over the next 3+ months prompting a new momentum base to set up near November or December of 2020. 

This base level may become a temporary base level as we find out how the COVID-19 virus is affecting the US economy and how quickly or aggressively people are exiting the urban environment. Overall, we believe this is an excellent opportunity for skilled technical traders to profit from a new downside price wave.

IYR may target $65 to $68 before finding any real support. Extended downside selling may push IYR to levels near $55 to $60 over the next 6+ months.

REM price levels may collapse to $13 to $15 over the next 4+ months as we believe the shift towards selling the urban areas and the tightening bank standards may result in a more constricted buying phase. Inventory in rural areas is limited – very limited. 

This may prompt a wave of current sellers to attempt to “get out now” and then wait for/hunt for the best rural opportunities.

Attempting to read this shifting market is like trying to predict the weather 3 months out. 

There are many various aspects of the real estate market that could subtly change how the market dynamics shift. The one thing we are certain of at this point is that the COVID-19 virus as well as the social and political turmoil will not end until sometime after November/December 2020. Therefore, we are certain to have another 6+ months of shifting markets which may peak shortly after the US Presidential election (although we doubt it).

We strongly believe the remainder of 2020 and most of 2021 may continue to prove very challenging for homeowners and people attempting to make transitions away from urban areas. 

We are alerting you to these opportunities because we believe a very good opportunity exists in these trades and we believe the real estate market will continue to be one of the biggest transitional price rotations we’ve seen in the past 8+ years. 

Trillions of dollars reside in both the residential and commercial real estate marketplaces and we believe a huge shift in these markets is about to unload on consumers/banks.

This could be one very big component of a fantastic trading opportunity for skilled technical traders.

The Geopolitical Importance of the WHO

Public health is vital to maintaining a healthy economy.

By: Alex Berezow

In 1958, the Soviet Union proposed a global effort to eradicate smallpox, a disease that kills roughly a third of those it infects, including 300 million in the 20th century alone. On Dec. 9, 1979, it was completely eradicated.

This public health triumph – perhaps the greatest in the history of mankind – would not have been possible without the efforts of the U.N.’s World Health Organization, which coordinated the immunization campaign. The magnitude of this achievement – removing a microbe from existence – cannot be overstated.

Global Smallpox Cases
(click to enlarge)

Past Glories

As a general rule, for an infectious disease to be eradicable, there must be a way to treat or prevent it (e.g., with a vaccine) to stop it from spreading. It also helps if the disease has a limited host range and does not survive inside other animals or in the environment.

Smallpox infects only humans, which made it an ideal target for eradication. Currently, at least five infectious diseases are on the cusp of eradication: polio, measles, mumps, rubella and dracunculiasis (Guinea worm).

But science, technology and public health policies aren’t enough to do the trick. There must also be political will, which plays the vital role of providing attention and resources over the long term.

Yet, many nations often behave as if they have little incentive to cure illnesses outside their own borders, especially if they’re on the other side of the planet. This is reasonable; the top priority of any nation-state is self-preservation. But it’s also short-sighted. As we’ve learned, some viruses are always somebody else’s problem – until they aren’t and come crawling across one’s own front lawn.

The WHO bridges the gap between rich nations, which are able to help but often don’t feel any urgency to act, and poor nations, which feel the urgency to act but are unable to.

The idea for the WHO was born at the same conference in 1945 that led to the development of the United Nations. The idea was proposed by the Brazilian and Chinese delegations, which said, “Medicine is one of the pillars of peace,” and put into effect three years later. Controversy over funding and influence quickly ensued.

The Soviet Union withdrew in 1949 because it believed the U.S. had too much influence but rejoined in 1956. (Stalin had died, and Nikita Khrushchev extended something of an olive branch to Washington.) Fast forward 64 years, and a parallel situation has developed: The U.S. has initiated the withdrawal process because it believes China has too much influence.

The WHO cannot live forever on its past glories, of course. The world in which it was created no longer exists. The post-World War II order has come to an end, and faith in internationalism has declined. That ideology once attracted countries far and wide, but now it is being replaced with more nationalist strategies.

But more important, the WHO is in need of cultural and fiscal reform and accountability. Like every institution, it’s a politicized body that suffers from institutional sclerosis and ineptitude.

The Associated Press reported that in a recent year, the WHO spent about $200 million on travel (which included swanky five-star hotels and business class flights), more than it spent on combating diseases like AIDS, hepatitis, malaria and tuberculosis combined.

A follow-up report showed that little has changed. The International Agency for Research on Cancer, a group within the WHO, has been accused of manipulating scientific reports to reach predetermined conclusions that served the personal financial interest of at least one of its members.

Calls for reform of the WHO stretch back many years. A chapter authored by Adam Kamradt-Scott published in the aptly titled “Political Mistakes and Policy Failures in International Relations” describes several major blunders that led to the organization’s mismanagement of the 2009 H1N1 influenza pandemic and the 2014 Ebola outbreak.

In the case of the former, the WHO wished to avoid the term “Mexican flu” and instead chose “swine flu,” a policy that unintentionally resulted in the mass culling of pigs and national bans on the import of pork products.

In the case of the latter, the report notes that a separate Associated Press investigation found that the WHO delayed declaring the Ebola outbreak an international emergency because “it could have angered the countries involved, interfered with their mining interests or restricted the Muslim pilgrimage to Mecca” – a clear indication of politics influencing its decision-making.

The WHO once again prioritized politics over global health when it was subsequently accused of delaying warnings about COVID-19 to placate Chinese President Xi Jinping.

According to Kamradt-Scott’s analysis, “Collectively, these mistakes suggest a risk-averse, reactionary bureaucracy and one highly protective of the organisation’s reputation. To date, there is little indication that this mind-set has changed.”

It’s little wonder that others have asked if the organization should simply be abolished. An article in the American Journal of Public Health bluntly asked that very question, noting that the WHO’s “successes are monumental, and so are its failures.”

But is that a good enough reason for the U.S. to withdraw? If a country’s participation in a multilateral institution is predicated on the belief that participation somehow benefits the country, it seems that the more relevant question is: Does the good the WHO accomplishes outweigh the bad?

The answer to that question varies from country to country. Scientists and public health officials would unambiguously answer yes. What is not debatable is that the U.S., right or wrong, will lose its seat at the table of the world’s largest health agency, and with it any influence it had within the organization. Do the benefits of keeping the seat outweigh the costs?

The One and Only WHO

Yes. The benefits are clear. Disease surveillance, such as monitoring populations for worrying signs of outbreaks or testing animals for potential zoonotic infections that could “jump” to humans, requires round the clock and round the world monitoring.

The U.S. could not do it on its own; it requires extensive NGO networks, resources and personnel that only an international organization like the WHO can provide.

Furthermore, American biomedical research is deeply integrated with the WHO. The U.S. has 83 collaborating centers with the WHO, including the Fred Hutchinson Cancer Research Center in Seattle, St. Jude Children’s Research Hospital in Memphis and Johns Hopkins University in Baltimore.

One example of the important collaborative work is the twice-annual decision to determine which strains will make up the northern and southern hemisphere seasonal influenza vaccines. As Stat News details, if the U.S. leaves the WHO, it is unclear to what extent organizations like the Centers for Disease Control and Prevention would participate or to what extent they can continue similar work on their own or with other countries through different channels.

Collecting intelligence from other countries is vital to protecting not just global public health but the health of American citizens – which, in turn, helps protect the health of the economy.

Critics might suggest that these functions could be served by another organization, but it’s unclear who that could be. Scientific research is an international endeavor and, hence, benefits from the existence of international bodies that facilitate collaboration.

The Bill & Melinda Gates Foundation, which has a similar mission to that of the WHO, was the latter’s second-largest source of funding in the 2018-19 budget cycle. (The U.S. was the largest.)

Obviously, if the Gates Foundation is willing to send more money to the WHO than any nation on the planet except the U.S., it clearly sees a tangible benefit. Besides, any organization that could grow large enough to take the place of the WHO eventually will succumb to the same problems of sclerosis and ineptitude. It’s like Murphy’s Law applied to humans in large groups.

The costs of remaining in the WHO are minimal. The financial contribution from the U.S. government – about $893 million – is no more than a rounding error in the federal budget. The only cost is the frustration of dealing with a wide group of stakeholders in a multilateral institution that depends on U.S. funding that occasionally provokes the U.S., a topic that barely garners American media attention.

This is hardly a moral debate. Public health is vital to an economy, as our experience with the coronavirus has made painfully obvious. A healthy economy is predicated on a healthy population, whose labor and capital is essential for economic activity. National security and regional stability are, in turn, predicated on healthy economies.

Remaining within the WHO is therefore aligned with America’s long-term geopolitical interest. Even if it withdrew, it would likely realize its mistake and rejoin at a later date. Political bluster and election-year campaigning don’t alter these fundamental realities.

America’s Compromised State

The lack of a coordinated national response to the COVID-19 pandemic in the United States has predictably resulted in an unmitigated economic and public-health disaster. The problem is and always has been that those in a position to do something about such crises do not speak for most Americans.

Angus Deaton

deaton12_SAUL LOEBAFP via Getty Images_schumermcconnell

PRINCETON – A malevolent, incompetent Trump administration bears much of the blame for America’s failure to control COVID-19. But there is an additional, less noticed cause: the Connecticut Compromise of 1787, which handicapped American democracy at its inception, and has since undercut Congress’s response to the pandemic.

At the Constitutional Convention of 1787 small and large states disagreed about the basis of representation, with the former arguing for equality of states, and the latter for equality of people. The compromise was to establish a bicameral legislature, with one chamber for the people and one for the states.

In the House of Representatives, people are represented in proportion to their numbers; in the Senate, each state has two senators, regardless of its population.

As a result, the four largest states today – California, Texas, Florida, and New York – hold only eight of 100 seats in the Senate, even though they account for one-third of the US population.

Eight votes also go to the four smallest states – Wyoming, Alaska, Vermont, and North Dakota – which together contain 1% of the population.

Now consider income inequality, which is often measured by the Gini coefficient, with zero signifying perfect equality, and one indicating perfect inequality (a single person receives all income).

The US Gini coefficient is 0.42 – the highest among rich countries. Yet if one were to apply the same metric of inequality to representation in the Senate, it would be an even larger 0.50.

Voters in Wyoming have ten times as much voting power as voters in Texas do. And because legislation must pass both chambers, coalitions of small states can easily block measures that are in the interest of the vast majority of the population. The Senate frequently does precisely this.

The geographical distribution of COVID-19 cases and deaths is even less equal than the distribution of voting power in the Senate. As of July 8, 45% of the 125,000 recorded COVID-19 deaths were in just four states – New Jersey, New York, Massachusetts, and Illinois – and 70% were in ten states.

There have been deaths in all states; but the combined death toll for Alaska, Hawaii, Wyoming, and Montana is only around 80. The 25 least affected states have lost a total of 8,000 people – 6.4% of the national total.

When US President Donald Trump proclaimed a national emergency on March 13, the country went into lockdown more or less uniformly. The emergency was national, and Congress responded by passing four separate measures on a non-partisan basis. But over time, the state-by-state lockdowns gradually eased – both officially and unofficially – with much less uniformity than the original freeze.

In places with low rates of infections and few deaths, people started moving around more freely compared to residents of states like New York, New Jersey, and Massachusetts, where people were dying or had died in large numbers. The Senate’s appetite for more emergency spending rapidly dwindled.

On May 15, the Democratic-controlled House passed the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act on a mostly party-line vote. But the legislation has since made no progress in the Senate.

The Republican majority in that chamber is a direct consequence of the Compromise of 1787, which awards a wildly disproportionate share of seats to rural, less-populated states that lean Republican.

Hence, the stage has long been set for a tragedy. Soon enough, the virus began to spread in the south and southwest, where low death rates had encouraged widespread nonchalance. Once policymakers realized that infections and deaths were spiraling upward, they tried to reverse the reopening process. But it appears they were too late, and now infections are once again threatening eastern states by way of travelers from southern and western states.

Lacking a national plan, let alone a constitution that would allow for central control, each state follows its own instincts and perceived interests, usually myopically. With free travel between states, the virus now will bounce back and forth across the country until a vaccine becomes available or herd immunity has been attained (assuming that lasting immunity is even possible).

As the deaths continue to rise in states that previously had fewer cases, the Senate will likely take up some version of the HEROES Act. This relief will be urgently needed, considering that unemployment benefits will run out at the end of this month, and the most affected states will soon run out of money.

But it would have been needed less if the Senate had shown leadership earlier on. A coordinated national strategy for the lockdown might have resulted in a slower return to work, but it would have been more sustainable than the chaos now underway.

In any case, the contagion is shifting from “blue” (Democratic) to “red” (Republican) states. As of July 8, the ratio of deaths in the 26 states with Republican governors (compared to the 24 states with Democratic governors) had risen to 29%, from 22% in late March.

Republican governors arguably have been more influenced than their Democratic counterparts by the pernicious disinformation issuing from the White House and its media allies.

Demonstrating open contempt for scientific advice, a recent Wall Street Journal editorial mocked Harvard University as “one of the last institutions in America that haven’t learned to be wary of making radical changes based on models from public health experts.”

That said, I suspect matters would not have been very different if Democrats had replaced Republican state legislators and governors. The problem is the lack of a central, enforceable national strategy in a country with a federal system that is ultimately controlled by local authorities responding to their own needs and perceived risks. It was always going to be difficult to ask people to sacrifice for faraway others, in order to mitigate a risk they do not see in their own communities.

The power of the states was a problem in Philadelphia in 1787, and it remains a problem today. Inequality is often cited as the cause of many social ills. As if America’s economic inequality weren’t bad enough, its institutionalized representational inequality has now severely undermined the effectiveness of its democracy.

Angus Deaton, the 2015 Nobel laureate in economics, is Professor Emeritus of Economics and International Affairs at the Princeton School of Public and International Affairs and Presidential Professor of Economics at the University of Southern California. He is the co-author of Deaths of Despair and the Future of Capitalism (Princeton University Press, 2020).