Relapse and recovery

What is the economic impact of the latest round of lockdowns?

The rich world has become better at mitigating their economic cost



The lockdowns of the spring, which at their peak covered more than half of the world’s population, provoked an almighty downturn. In April global economic output was 20% below where it would have been otherwise. 

As cases of coronavirus have soared again, rich countries are imposing another round of lockdowns. France was in confinement in November, Italy locked down over Christmas, and England went into a national lockdown on January 6th. Parts of Japan have entered a state of emergency. 

The situation in America, where state and local authorities, not the federal government, are mainly responsible for stay-at-home orders, is more complicated. But one measure of lockdown stringency suggests that restrictions there are about as tight now as they were in the spring.

The latest round of lockdowns will hit the economy again—but, perhaps, not as hard. Analysts at Goldman Sachs, a bank, have argued that in Britain’s case “the sensitivity of economic activity to covid-19 restrictions has diminished significantly since the first lockdown.” 

In research published on January 8th hsbc, another bank, noted that German industrial output “extended its recovery in November, undeterred by the renewed lockdown”. 

America’s jobs report for December, released on the same day, showed that employment fell for the first time since April—a depressing result when millions of people are still out of work. 

Yet other high-frequency economic indicators, such as those for consumer spending, are in better shape than they were in the spring.

It will be some time before official gdp figures confirm the rich world’s growing resilience to lockdowns. But in a recent paper Nicolas Woloszko of the oecd, a rich-country think-tank, uses Google-search data to construct a weekly estimate of gdp for large economies. 

In April they were operating at about 80% capacity. Now they are running at over 90% (see chart). Three main factors explain the improvement: less public fear; better calibrated government policy; and adaptation by businesses.


Take fear first. In March and April the coronavirus was an unknown quantity, and many people responded by barricading themselves inside their houses. 

Analysis of a survey by YouGov suggests that in April more than 60% of respondents in rich countries were worried about catching the virus. 

Yet a better understanding of what they can do to avoid falling ill, and perhaps lockdown fatigue, mean that people may now be willing to go out and about more.

The share of people expressing concern about catching covid-19 fell to around 50% in November. 

Data from Google suggest that in many countries, people are moving around in public spaces more than they were at the start of the pandemic. 

That has led some public-health authorities to tear their hair out. 

The “current lockdown has not had nearly as much impact on mobility (and likely contacts) as...in March,” reads a presentation from scientists in Ontario in December. 

British and American newspapers mention the words “illegal rave” five times as frequently as in the spring.

The greater willingness to defy government orders probably worsens the spread of the virus, whatever its economic benefits. But the second factor that explains the resilience of economies this time round, the calibration of government policy, presents less of a trade-off. 

Officials have worked out what lockdown measures come at the least economic cost—so there is now less appetite for, say, closing schools than in the spring, but more appetite for mask-wearing directives and the testing of international arrivals, neither of which impose much hassle on anyone. 

Many have followed the example of Germany, where many construction sites were allowed to stay open during the first wave. France has kept manufacturing going; output in the sector barely shrank in November and grew in December.

The third reason for resilience relates to adaptation by businesses. The sudden shift to remote working was a shock for many of those who usually labour in an office, stuck as they were with old computers and not much else. Companies have since invested in making themselves more productive even under lockdown. 

From March to October Britain imported £4.7bn-worth ($6bn) of laptops, 20% more than in the same period in 2019. A recent paper by Nick Bloom of Stanford University and colleagues analyses American patent filings and finds that the pandemic has “shifted the direction of innovation towards new technologies that support video conferencing, telecommuting [and] remote interactivity”.

Consumer-facing businesses have done even more to cope. New York’s best jazz clubs now offer live-streams direct to living rooms. 

While staying on a farm in eastern England your correspondent bought a meal from Gujarati Rasoi, an Indian food stall 92 miles away in London, which like many restaurants has started to offer nationwide delivery. 

In Britain the share of firms open for business was no lower at the end of last year than it was in the summer, when restrictions were far looser, according to official data. 

That is not the case for small businesses in America, but a larger share remains open than last spring.

This resilience of the economy in the face of the latest wave of lockdowns has several implications. When the virus first began to spread, governments were intent on freezing the economy in place. 

But over time it has become clear that activity has adapted to the shock of the pandemic. This means that governments should have to do less by way of fiscal support—which, indeed, is precisely their plan in 2021.

Moreover, as fewer resources are left unused during this latest round of lockdowns, it should inflict fewer scars. That could allow production to ramp up more quickly once restrictions are lifted. 

Analysts at Morgan Stanley, a bank, expect American gdp to return to its pre-pandemic trend by the end of this year. Plenty could still thwart that forecast. 

Whatever happens, though, the economy that went into the pandemic will look very different from the one that leaves it behind. 

Company cars: the electric future is now

Tax perks are outstanding for battery vehicles, but enjoy them while they last

Charles Calkin

    © Akio Kon/Bloomberg


Covid-19 interrupted many things in 2020. One of them was what could have been the year of the electric car.

Since April 2020, the tax on all-electric company cars has been zero in the UK. With 50 per cent of new vehicles going to the fleet market, this should have been the industry equivalent of slamming your foot on the accelerator of a Tesla Roadster (0-60 in 1.9 seconds). Instead it has been like driving uphill in a Reliant Robin.

There has been some progress, though. Latest figures from the Society of Motor Manufacturers and Traders show that last year 108,205 battery electric vehicles were sold in the UK — almost three times as many as in 2019 and one in 15 of all sales. 

More than one in four cars bought had some electric drive capacity, if you count the various hybrids. This was in a year that car sales overall were down by nearly 30 per cent.

Expect a lot of pent-up demand in the year ahead — and much of it to be targeted towards electric cars, especially among drivers who have a company car or own their own company. The tax perks are outstanding.

Someone who in April picked up the keys to a sporty, petrol-fuelled BMW 3-series company car (146g/km of CO2) will pay a benefit in kind (BIK) tax of 32 per cent, rising to 34 per cent by 2022-23. 

Had they opted instead for a top-of-the-range Nissan Leaf E+, for a similar price, the BIK would be zero this year, 1 per cent next and 2 per cent the year after.

Over three years a higher-rate taxpayer opting for the BMW will pay around £13,700 in tax; the Nissan Leaf driver just £423. An electric car can also cost half as much to run, and you pay no road tax. You are also exempt from paying the London congestion charge, potentially worth thousands a year to a daily commuter.

For business owners there are extra perks. Any income in £100,000-£125,000 bracket is effectively taxed at 60 per cent, because for every £2 that your income is above £100,000 you lose £1 of your personal allowance.

I have clients in that territory who are contemplating buying themselves an electric company car instead of taking the income. They figure that 0-2 per cent in tax is a lot more palatable than up to 60 per cent.

Brand new zero-emission cars qualify for a 100 per cent first-year allowance, which means company owners can write off the whole cost of the car against their profits in year one — reducing their corporation tax bill, too. Charging the car at the office is not a taxable benefit either. 

There are, of course, obvious downsides to buying electric. Even accounting for a government grant of up to £3,000 (and £350 towards the cost of installing a home charger), electric vehicles are still typically £5,000-£10,000 more expensive than petrol car equivalents.

But the biggest issue for many drivers is range anxiety — the fear of running out of energy mid-journey or having to hunt down an available charging point on a long trip as you stare in panic at your sinking battery meter.

You could buy a plug-in hybrid. You will probably compromise on boot space for the batteries. 

And your BIK rates are likely to rise — the plug-in hybrid version of the BMW 3-series costs an extra £6,000 and has a BIK of 10 per cent this year, rising to 12 per cent in 2022-23. 

It will typically do 37 miles before the petrol engine kicks in. 

Over three years a higher-rate taxpayer will pay around £5,400 in BIK tax. Is it worth it? It depends on whether most of your driving is around town.

The range issue will subside for pure electric cars as technology improves. More public charging points are being installed across the country — there are now nearly 37,000 in around 13,000 locations, and several hundred more are being added each month.

All the major car manufacturers are ramping up production of electric cars. 

Volkswagen has pledged to invest £65bn in their development over the next five years and is working on 70 models. 

Investors who have seen Tesla shares rise nearly eightfold in the past year may think that’s a cue to invest in VW or other car manufacturers. 

They are certainly on more attractive multiples, but James Hambro & Partners’ investment team takes a different view. 

All these cars are going to have more semiconductors on them because they’re having to deal with electrification of the drive train. 

We believe that by owning companies in that space instead you get the benefit of the trend for arguably less risk. 

When it comes to depreciation, so far electric cars have held their value surprisingly well. It is difficult to say what will happen as more models come on stream and the prices of new cars tumble.

So is it time to leap? Certainly an electric company car on lease is worth exploring, but I do not expect the BIK rates to remain so low for long. 

They were similarly alluring for hybrids a few years ago, but a Toyota Prius (94g/km CO2) now attracts a BIK of 21 per cent.

On the other hand, the government is determined to drive us to electric, announcing in November that new cars fuelled purely by petrol or diesel will no longer be sold in the UK by 2030. Hybrids have an extension to 2035, with caveats.

One cannot rule out future measures to make ownership of fossil-fuel vehicles more expensive — which could underpin second-hand electric car prices.

It does not surprise me that for many of my sustainability-minded clients buying an electric car is top of their list of new year resolutions.


Charles Calkin is a financial planner at wealth manager James Hambro & Partners

Post Trump, Republicans Are Headed for a Bitter Internal Showdown

G.O.P. leadership would like to blunt President Trump’s influence over the party. Mr. Trump and his allies want to punish those who have crossed him. A series of clashes looms.

By Alexander Burns and Jonathan Martin

Representative Liz Cheney, the third-ranking House Republican, voted to impeach President Trump this week and has since faced calls for her removal from her leadership role.Credit...Anna Moneymaker for The New York Times


As President Trump prepares to leave office with his party in disarray, Republican leaders including Senator Mitch McConnell are maneuvering to thwart his grip on the G.O.P. in future elections, while forces aligned with Mr. Trump are looking to punish Republican lawmakers and governors who have broken with him.

The bitter infighting underscores the deep divisions Mr. Trump has created in the G.O.P. and all but ensures that the next campaign will represent a pivotal test of the party’s direction, with a series of clashes looming in the months ahead.

The friction is already escalating in several key swing states in the aftermath of Mr. Trump’s incitement of the mob that attacked the Capitol last week. They include Arizona, where Trump-aligned activists are seeking to censure the Republican governor they deem insufficiently loyal to the president, and Georgia, where a hard-right faction wants to defeat the current governor in a primary election.

In Washington, Republicans are particularly concerned about a handful of extreme-right House members who could run for Senate in swing states, potentially tarnishing the party in some of the most politically important areas of the country. Mr. McConnell’s political lieutenants envision a large-scale campaign to block such candidates from winning primaries in crucial states.

But Mr. Trump’s political cohort appears no less determined, and his allies in the states have been laying the groundwork to take on Republican officials who voted to impeach Mr. Trump — or who merely acknowledged the plain reality that Joseph R. Biden Jr. had won the presidential race.

Republicans on both sides of the conflict are acknowledging openly that they are headed for a showdown.

“Hell yes we are,” said Representative Adam Kinzinger of Illinois, one of the 10 House Republicans who voted to impeach Mr. Trump.

Mr. Kinzinger was equally blunt when asked how he and other anti-Trump Republicans could dilute the president’s clout in primaries: “We beat him,” he said.

Mitch McConnell, the Senate Republican leader, is said to be determined to thwart Mr. Trump’s influence in the next elections.Credit...Anna Moneymaker for The New York Times


The highest-profile tests of Mr. Trump’s clout may come in two sparsely populated Western states, South Dakota and Wyoming, where the president has targeted a pair of G.O.P. leaders: John Thune, the second-ranking Senate Republican, and Liz Cheney, the third-ranking House Republican.

“I suspect we will see a lot of that activity in the next couple of years out there for some of our members, myself included,” said Mr. Thune, adding that he and others would have to “play the hand you’re dealt.”

He may face less political peril than Ms. Cheney, who in voting to impeach Mr. Trump said that “there has never been a greater betrayal by a president.” The Wyoming Republican Party said it had been inundated with calls and messages from voters fuming about her decision.

Mr. Trump has talked to advisers about his contempt for Ms. Cheney in the days since the vote and expressed his glee about the backlash she is enduring in her home state.

Privately, Republican officials are concerned about possible campaigns for higher office by some of the high-profile backbenchers in the House who have railed against the election results and propagated fringe conspiracy theories.

Among those figures are Representatives Marjorie Taylor Greene of Georgia, Lauren Boebert of Colorado and Andy Biggs of Arizona. All three states have Senate seats and governorships up for election in 2022.

Just as striking, a number of mainline conservatives in the House are speaking openly about how much Mr. Trump damaged himself in the aftermath of the election, culminating with his role in inspiring the riots.

“The day after the election, that question of leadership was unquestionably in one person’s hands, and each week that has gone past, he has limited himself, sadly, based off his own actions,” said Representative Patrick McHenry of North Carolina, who predicted that rank-and-file voters would come to share his unease after they fully absorbed the Capitol riot.

Representative Adam Kinzinger, Republican of Illinois, said he expected challenges over his vote to impeach Mr. Trump.Credit...Anna Moneymaker for The New York Times


Still, Mr. Trump has vowed a campaign of political retribution against lawmakers who have crossed him — a number that has grown with the impeachment vote. The president remains hugely popular with the party’s grass roots and is most likely capable of raising enough money to be a disruptive force in 2022.

Scott Reed, the former chief political strategist for the Chamber of Commerce, a powerful business lobby, said that Republicans should prepare for a ferocious internecine battle. Mr. Reed, who as an ally of Mr. McConnell’s helped crush right-wing populists in past elections, said the party establishment would have to exploit divisions within Mr. Trump’s faction to guide its favored candidates into power.

“In 2022, we’ll be faced with the Trump pitchfork crowd, and there will need to be an effort to beat them back,” Mr. Reed said. “Hopefully they’ll create multicandidate races where their influence will be diluted.”

An early test for the party is expected in the coming days, with Trump loyalists attempting to strip Ms. Cheney of her House leadership role. Should that effort prove successful, it could further indicate to voters and donors that the party’s militant wing is in control — a potentially alarming signal to more traditional Republicans in the business community.

Kevin McCarthy, the House minority leader, has acknowledged to political donors in recent days that the departing president and some members of his faction have seriously damaged the party’s relationship with big business, people familiar with his conversations said.

If Ms. Cheney is deposed, it could encourage primary challenges against other Republicans who supported impeachment or censure, including more moderate lawmakers like Representatives Peter Meijer and Fred Upton of Michigan and John Katko of New York, whose districts could slip away from Republicans if they nominated hard-line Trump loyalists. 

But in a sign that Mr. Trump can’t expect to fully dictate party affairs, Mr. McCarthy has indicated that he opposes calls to remove her from leadership.

William E. Oberndorf, an influential Republican donor who gave $2.5 million to Mr. McConnell’s super PAC, the Senate Leadership Fund, in the 2020 election, said that donors should be closely watching the impeachment votes as they formulate their plans for giving. A longtime critic of Mr. Trump, Mr. Oberndorf said it had been a mistake for the party not to oust Mr. Trump during his first impeachment trial last year.

“They now have a chance to address this egregious mistake and make sure Donald Trump will never be able to run for public office again,” Mr. Oberndorf said. “Republican donors should be paying attention to how our elected officials vote on this matter.”

It is not yet clear how widely the party leadership might embrace a no-new-Trumps strategy, and there are strong indications that the Republican base might react with fury to any explicit effort to relegate the former president to the political dustbin. In a vexing complication for Senate leaders, the chairman of their campaign committee, Senator Rick Scott of Florida, has spoken critically of impeachment and opposed certifying Pennsylvania’s election results — a vote that could undermine his ability to raise funds from big donors.

A number of state parties are already controlled by Trump allies, some of whom said Republican traditionalists would have to come to terms with their new coalition.

“What President Trump has done has realigned the political parties, and either the establishment of the Republican Party recognizes that or we don’t — and I believe that we will,” said Representative Ken Buck, who is also the Colorado G.O.P. chairman. He suggested that the party should be attentive to Mr. Trump’s working-class support and avoid being “hyperfocused on the suburban vote.”

Kelli Ward, onstage, chair of the Arizona Republican Party, spoke at a protest in Phoenix this month. She is one of a number of Trump loyalists who control state parties across the country.Credit...Adriana Zehbrauskas for The New York Times


In some respects, the party may still face the same irreconcilable pressures that have hobbled it for the past four years: on the one hand, Mr. Trump’s powerful cult of personality on the right; on the other, his deep personal unpopularity with the majority of American voters. 

As appalled as party leaders may be by the president’s conduct, they cannot win general elections if his die-hard supporters stay home or cast protest votes.

On paper, the G.O.P. should stand a good chance of recapturing one or both chambers of Congress in the next campaign, since the Democratic majorities are small and the party that holds the White House usually loses ground in midterm elections.

But Republicans are in a state of extreme disarray in the Sun Belt states that slipped into Mr. Biden’s column, and in several large Northern battlegrounds like Wisconsin and Michigan, they are confronting the likelihood of unruly Senate or gubernatorial primaries. The last time Democrats controlled the presidency, the House and the Senate, in 2010, Republicans won the House but failed to claim the Senate because some of their nominees were out of the mainstream.

The divisions may be playing out most acutely right now in the two historically red states that flipped into Mr. Biden’s column and elected three Democratic senators this cycle: Georgia and Arizona. Local G.O.P. establishments are reeling from those defeats, and Mr. Trump has battered local leaders with vehement — and false — claims of political perfidy.

Both states have elections for Senate and governor in 2022, offering hard-line Trump supporters a number of inviting targets.

In Arizona, state party officials who supported Mr. Trump’s attempts to overturn Mr. Biden’s victory there have initiated an effort to censure Gov. Doug Ducey, a Republican, over his public-health policies, as well as Cindy McCain and former Senator Jeff Flake, a pair of Republicans who backed Mr. Biden. Mr. Ducey may be the party’s strongest recruit for a Senate race next year.

Jonathan Lines, a former chairman of the Arizona Republican Party who is supportive of Mr. Trump, said he feared that an insular faction would cripple the G.O.P. at a moment when it needed to be rebuilding.

“It’s just destroying the party to go out and try to censure people,” Mr. Lines said. “It doesn’t show that they’re trying to attract new people to the party.”

And in Georgia, Mr. Trump has vowed to take down his former ally, Gov. Brian Kemp, for refusing to sabotage the election outcome in his state. This week, the state’s second-ranking Republican, Lt. Gov. Geoff Duncan, who rebuked Mr. Trump for his interference, demoted three state legislators who had sought to help Mr. Trump void the state’s election results.

Several Republicans said they hoped Democrats would overreach with their newly acquired power in ways that would unite the G.O.P. “Nothing unites a party like a common threat,” said Representative Steve Stivers of Ohio.

Yet Mr. Stivers, who ran the House campaign committee in 2018 and saw how Mr. Trump hurt the party, said he hoped the president would “step aside” in the fashion of his predecessors who have “had their time in the sun.”

And what if he doesn’t, and demands payback against the likes of Mr. Upton, a much-liked House veteran who backed impeachment?

“Then I max out to Fred Upton,” Mr. Stivers said.

Why Biden Should Abandon Trump’s Failed Trade War with China

US President-elect Joe Biden says he will not make any significant changes to America's China policy until he conducts a full review of the existing "phase one" trade agreement and consults with allies in Asia and Europe. But it should not take a comprehensive review to see that this approach is unworkable.

Zhang Jun, Shi Shuo



SHANGHAI – When President-elect Joe Biden is inaugurated next week, he will quickly move to transform most dimensions of US policy. A glaring exception is China. But if Biden maintains outgoing President Donald Trump’s confrontational approach to the world’s second-largest economy, he will come to regret it.

While Biden may be less overtly antagonistic toward China than Trump was, he has echoed many of his predecessor’s complaints about China’s trade practices, accusing the country of “stealing” intellectual property, dumping products in foreign markets, and forcing technology transfers from American companies. 

And he has indicated that he will not immediately abandon the “phase one” bilateral trade agreement reached last year, or remove the 25% tariffs that now affect about half of China’s exports to the United States.

In Biden’s view, it is best not to make any significant changes to the ongoing approach to China until he conducts a full review of the existing agreement and consults with America’s traditional allies in Asia and Europe, in order to “develop a coherent strategy.” 

His chosen US Trade Representative, Katherine Tai – an Asian-American trade lawyer (and fluent Mandarin speaker), with extensive experience in China – might play an important role in the review process.

But it should not take a comprehensive examination to see that high tariffs and the phase one agreement are fundamentally incompatible. In the last two years, the proportion of Chinese exports to the US subjected to additional tariffs has soared from a nearly insignificant share to over 70%. 

And the share of US exports to China subject to tariffs has skyrocketed, from 2% in February 2018 to more than 50% two years later.

Over the same period, the US has implemented 11 rounds of sanctions against Chinese entities. Last month’s addition of 59 Chinese enterprises and individuals to the US Department of Commerce’s list of export-controlled entities brought the total to 350 – the most for any country.

With such high costs and strict limitations on exports, China cannot possibly fulfill its commitment, included in the phase one agreement, to purchase some $200 billion in additional US goods and services in 2020-21. 

Since January 2020, US exports to China have fallen far short of the deal’s targets. As a result, in November 2020, China had fulfilled just 57% of its annual purchase commitment.

China’s options for accelerating progress are severely limited. The private sector – which accounts for nearly 80% of Chinese demand for US imports – cannot simply be instructed to purchase American goods at such high tariffs. And forcing state-owned enterprises to pick up the slack would create its own problems.

The conclusion is clear: as long as Biden upholds Trump’s confrontational approach, the phase one accord will be fundamentally unworkable, and further progress toward a mutually beneficial trade relationship will be all but impossible. Bilateral trade could even collapse.

But this does not mean that the Biden administration need only remove tariffs. The phase one agreement is also deeply flawed, not least because complying with it would force China to reduce imports from other countries. 

By giving the US a significant advantage over China’s other trading partners, the agreement may even violate the World Trade Organization’s principle of non-discrimination.

Other countries, therefore, are trying to level the playing field. At the end of 2020, the European Union and China concluded the Comprehensive Agreement on Investment, and all ten of the ASEAN countries signed the Regional Comprehensive Economic Partnership (RCEP), together with China, Japan, South Korea, Australia, and New Zealand.

None of this is in America’s interest. For starters, ASEAN countries – which, collectively, form America’s fourth-largest export market – are likely to shift more trade to their RCEP partners. The fact that the RCEP lacks the labor and environmental standards seen in agreements with Canada, Mexico, and the US will reinforce this shift.

The RCEP is also likely to increase Chinese demand for agricultural and energy exports from Australia and New Zealand. And by indirectly establishing a free-trade zone among China, Japan, and South Korea – the so-called iron triangle – it will consolidate supply chains in Northeast Asia and the West Pacific. This puts the US at a growing strategic disadvantage.

Instead of upholding Trump’s confrontational China policy, Biden should accept China’s central role in the global economy, and pursue a mutually beneficial, non-discriminatory trade agreement. China’s efforts to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – which evolved from the Trans-Pacific Partnership after Trump abandoned it upon taking office four years ago – could provide an important opening here.

The Biden administration promises a fresh start for the US and its relations with the world. 

To fulfill that promise, he must end his predecessor’s disastrous trade war against China.


Zhang Jun is Dean of the School of Economics at Fudan University and Director of the China Center for Economic Studies, a Shanghai-based think tank.

Shi Shuo is a PhD candidate in economics at Fudan University’s China Center for Economic Studies and a visiting fellow at CERDI-IDREC, Université Clermont Auvergne.