World should get ready to weather gloomier US in H2

With the first half of 2020 drawing to an end, the US government is still scrambling for ways to reopen its economy safely as well as sustainably, amid the lingering coronavirus pandemic, which doesn’t bode well for a rapid economic recovery in the coming months.

The financial market is now looking forward to the release of non-farm payroll data from the US, due later this week, for clues about the country’s economic health in the second half.

A Bloomberg poll of economists previously estimated that the US Labor Department would record a $3 million uptick in June payrolls, indicating the US economy remained on track for recovery this past month with an improving labor market.

White House economic adviser Larry Kudlow has also expressed optimism for the second half, predicting a V-shaped recovery and a vigorous 20 percent economic growth.

Yet signs of COVID-19 infection resurgence in many US states have put such optimism on shaky footing.

A number of US states including California, Texas and Florida have rolled back their efforts to reopen the economy as their COVID-19 cases continue to soar. The US has reported more than 2.5 million coronavirus cases now, with its health officials warning “the window is closing” for the country to effectively curb the virus.

Facing a raging “second wave” outbreak, there is sufficient reason to believe the US economy will be under great pressure in the second half of this year.

If economic recovery doesn’t go smoothly in the coming months, one possible response from the Trump administration would be to issue more fiscal stimulus packages, or to stave off an economic meltdown by printing more money. Due to the country’s dollar hegemony, such helicopter money would come at the expense of the global economy, and other economies will have to shoulder the burden of the US’ massive quantitative easing policy.

Meanwhile, as the presidential election draws nearer, US politicians are widely expected to play old tricks and blame other economies for their domestic problems in order to deflect domestic pressure and scapegoat other nations. Recent developments indicate the US government won’t wait until the second half to fire shots at its trading partners.

Due to a longstanding dispute over subsidies in the aviation industry, the Trump administration is reportedly weighing new tariffs on $3.1 billion of EU and British exports to the US.

Given what the US has done to its allies, it is conceivable that China will continue to be the main target of US political hardliners in the second half. As such, China needs to be vigilant and prepare for the spillover impact of a gloomier US economy in the second half.