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Post #1 (2/25/2020): Trade Deals Between the US and India

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Post #1 (2/25/2020): Trade Deals Between the US and India

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This article reports on President Trump’s visit to India last week.  The article discussed trade deals that were discussed between India’s Prime Minister Narendra Modi and President Trump. Trade deals were made between the United States and India, making India the largest trading partner with the United States.

The article relates to our in-class discussions on free trade and the WTO.  Free trade is an ongoing current event and it’s important that we remain informed.  This also relates to the films that we have been watching over the past two weeks in regards to trade and how it affects other countries.

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Welcome to Foreign Policy's weekly South Asia Brief. The highlights this week: U.S. President Donald Trump wraps up his India visit without a trade deal, the United States and the Taliban move closer toward a peace agreement in Afghanistan, and the region's top telecommunications firms grapple with the government on taxes.
If you would like to receive South Asia Brief in your inbox every Tuesday, please sign up here.
It was the best of times, it was the worst of times. On Tuesday, New Delhi presented a tale of two cities. One set of images broadcast to the world showed U.S. President Donald Trump with Indian Prime Minister Narendra Modi-a glitzy meeting of the leaders of the world's two largest democracies. Another set of images, getting less attention, showed Hindu mobs attacking people who were protesting the controversial new citizenship law. Indian media reports 13 people have died in the violence this week and at least 150 are injured.

As I wrote last week, Trump's 36-hour visit to India was mostly about optics. He addressed an adoring audience of more than 100,000 in Ahmedabad on Monday, stopped by a landmark to founding father Mohandas Gandhi, and visited the iconic Taj Mahal for the first time. On Tuesday, he delivered remarks with Modi in New Delhi, telling the prime minister, "This has been a very special visit-unforgettable, extraordinary."

Lest reporters puncture the mood, neither leader took questions. (Modi, in fact, has never fronted a press conference in his time as prime minister.) But the careful optics were damaged when reports of deadly clashes over religious freedom begin to overshadow the public narrative. Later, at a solo press conference with reporters, Trump responded to a question about whether he broached the issue with his counterpart: He described Modi's explanation as "incredible"-in a good way, one presumes-but he didn't share any details.

Delhi deals? Despite years of high-level negotiations, India and the United States did not announce a trade deal-even a so-called mini-deal-despite Trump's hints during the visit that an "incredible" agreement was in the works. Both sides are holding out for better terms on items such as agricultural products, medical devices, and motorbikes-but it's difficult to imagine momentum in an election year in the United States and with the impetus of a state visit already squandered.

Some smaller deals were announced, however. India agreed to purchase military equipment, including attack helicopters, worth $3 billion. And the two sides agreed to increase cooperation in fighting terrorism and in securing 5G networks.

Trump's trade strategy. The failure to reach a broader deal mostly highlights the limitations of Trump's approach to trade. As Washington is discovering, it is not easy dealing with a country led by a populist leader with a strong mandate and a proclivity toward protectionism. Despite those hurdles, the broader trendlines in the U.S.-India relationship continue to seem robust, as shown by the visit itself.

The United States is now India's largest trading partner, ahead of China. And India represents the United States' ninth-biggest trade relationship. As India grows richer, those ties will strengthen. The question is whether Washington will have leverage to question New Delhi's recent approach to policing, religious freedom, and freedom of speech. Perhaps a prouder, more confident, and more nativist New Delhi doesn't care.

Afghan peace deal on the horizon. If an ongoing seven-day reduction in violence holds, the United States and the Taliban will sign a peace accord in Doha, Qatar, on Saturday. A deal would signal the beginning of a pullout of U.S. troops from Afghanistan and theoretically kick-start talks between the Taliban and the Afghan government. But serious questions about security remain unanswered, especially since the Taliban have so far refused to speak to President Ashraf Ghani's government in Kabul.
For more, Foreign Policy's Michael Hirsh on why, contrary to conventional wisdom, the U.S. war in Afghanistan was actually a winnable conflict.
Coronavirus updates. South Asian countries have so far largely steered clear of coronavirus outbreaks. India has only three confirmed cases, while Nepal and Sri Lanka have one each-but that could change. On Monday, Afghanistan confirmed its first case in the province of Herat, bordering Iran-which has seen a sharp spike in virus cases and deaths in the last few days. "The thing that makes us worried about coronavirus in Afghanistan is that our people, due to weak economy, are already suffering from different diseases and they have weak immune system," Afghan Health Minister Ferozuddin Feroz said at a press conference this week. Afghanistan has suspended all travel to and from Iran.

Terrorism financing. The Financial Action Task Force, a global dirty money watchdog, gave Pakistan an extra four months to meet its anti-terrorism finance rules. If Pakistan fails to meet those targets, it could join Iran and North Korea on the group's blacklist, potentially affecting Islamabad's ability to attract investments and loans from international finance groups.

Only seven U.S. presidents have made official visits to India. Who was the first?
Scroll down for the answer.
A) Richard Nixon
B) Jimmy Carter
C) Harry Truman
D) Dwight Eisenhower

Vodafone verdict. The British telecommunications firm Vodafone's Indian venture has until March 17 to pay the government $7 billion in retroactive taxes and fees. The Indian subsidiary has said it could go bankrupt and shut up shop. Vodafone's fate is critical not only for the future of the country's cellular industry but also for any future foreign investment. The issue of retroactive taxes has long spooked global companies from expanding their business in the region's biggest economy.

For more, read former Indian chief economic advisor Kaushik Basu's essay in Foreign Policy last week. "Trust and a sense of belonging are not economic variables, but they form an important part of the underlying normative foundation of an economy. These values are eroding in India."

Bangladesh telecom tussle. In a case similar to that of Vodafone's in India, Bangladesh's Grameenphone-the country's top cell-phone operator- paid $117 million to regulators on Sunday after being accused of evading spectrum fees and taxes. But Grameenphone owes the government as much as $1.48 billion in unpaid taxes, according to a regulatory commission's audit. Nearly half of Bangladeshi mobile phone customers use Grameenphone's service.

Illustration for Foreign Policy

Hindu mobs have been on a rampage in Delhi this week, seeking to intimidate protesters against the government's controversial citizenship law. The mobs often chant " Jai Shri Ram!"-literally, "Victory to Lord Ram," a popular Hindu deity. What does it mean, and where does the phrase come from? In Foreign Policy, the Delhi-based journalist Snigdha Poonam explains the history of Jai Shri Ram and how they became the three most polarizing words in India.

D) Dwight Eisenhower.

The 34th president of the United States was the first to visit India while in office. Eisenhower's 1959 trip was followed by those of Richard Nixon in 1969, Jimmy Carter in 1978, Bill Clinton in 2000, George W. Bush in 2006, Barack Obama in 2010 and 2015, and Trump in 2020.
We welcome your feedback at newsletters@foreignpolicy.com. You can find older editions of South Asia Brief. For more from FP, subscribe or for our other newsletters.
That's it for this week.

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How Trump's Trade Strategy Met Its Match in India

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Welcome to Foreign Policy's weekly South Asia Brief. The highlights this week: U.S. President Donald Trump wraps up his India visit without a trade deal, the United States and the Taliban move closer toward a peace agreement in Afghanistan, and the region's top telecommunications firms grapple with the government on taxes.

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Post #2 (2/28/2020): The Coronavirus Spread

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Post #2 (2/28/2020): The Coronavirus Spread

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This article is reporting on the spread of Coronavirus in Japan and how it has severely affected their economy and other parts of their government. On top of the stock market dropping 9.6% in a week, the tourism in Japan has dropped significantly, which is something that the economy relies on; this could also affect the 2020 Summer Olympics.

I believe that Japan’s economy being so drastically affected by the coronavirus will affect us globally because Japan is considered one of the global superpowers. Their economy could easily affect our economy and our stock market because our economies are interconnected with one another.

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TOKYO-The coronavirus outbreak could hardly have come at a worse time for Japan. The economy and Prime Minister Shinzo Abe's reputation have both taken a hit. Even the much-vaunted Tokyo 2020 Olympic Games that kick off in late July may be at risk.

It was not supposed to be like this. Abe had just celebrated the feat of becoming the longest-serving prime minister in Japan's history. Relations with China were improving with an upcoming state visit by Chinese President Xi Jinping, his first since coming to power. The Olympics were expected to show a new Japan, much in the way that the 1964 Summer Games had showcased the country's postwar economic recovery.

The Diamond Princess ruined all that. The virus-hit cruise ship docked at its home berth of Yokohama on Feb. 3. The ship had been on a two-week tour that took it to Hong Kong, Vietnam, and Taiwan, with one passenger taken off in Hong Kong and later diagnosed as having the virus.

Japanese officials ordered the ship under quarantine-a move that raised doubts over whether this would help to stop the spread of the virus or instead create an incubation center among the roughly 3,700 passengers and crew on board.

That controversy grew after Kentaro Iwata, a professor of infectious diseases at Kobe University, recorded a YouTube video on the ship in which he criticized the conditions as being inadequate to control new infections. Government officials shot back, producing data that they said demonstrated that most of the infections occurred before the lockdown and that the measures had helped to slow down the rate of infection. Iwata soon took down his videos, telling reporters that he had been assured that rules had been tightened and that "the role of the YouTube post was over."

Adding further doubt, however, was a later revelation that some Japanese passengers had been allowed to leave without any further safeguards, while U.S. and other foreign passengers had been taken home to face two weeks more of isolation. To make matters worse, authorities admitted that 23 of the Japanese passengers had been allowed to leave without a final test. In all, more than 700 people have been reported as being infected on the ship, with four deaths.

Numbers for the rest of Japan have been less severe. The government says 210 people around the country have tested positive, considerably fewer than the 2,337 cases in South Korea, where President Moon Jae-in put the country on the highest alert level for an infectious disease outbreak.

Shigeru Omi, chief director of the Japan Community Health Care Organization and an expert in this field, acknowledged that "no system is perfect and Japan is no exception." But he said that Japanese health officials and others are working around the clock and that Japan was now focusing on preventing further infection centers and in reducing mortality.

While the success of Japan's approach has yet to be determined, there is no doubt that one of the casualties will be the economy.

Even before the outbreak, Japan was sliding toward a possible recession, with the gross domestic product off a surprisingly steep 6.3 percent at an annualized rate in the fourth quarter, hit by a downturn in consumption following an increase in the national sales tax. The virus outbreak will almost certainly worsen the situation. Goldman Sachs estimates that the first quarter will see a fall of 0.3 percent, with an overall contraction of 0.4 percent for the year.

New measures announced Tuesday by the government will likely make this worse. In order to stop the creation of new "clusters" of infection, it is recommending that people avoid large groups or close contact with others over a long period. Forget candlelight dinners or boozy work outings as companies cancel planned parties.

Corporate Japan has fallen in line. Advertising giant Dentsu has told 5,000 workers at its headquarters to stay at home (but keep working) after one employee tested positive for the virus. Cosmetics group Shiseido has meanwhile told 8,000 employees to telework. Another major Japanese group has told employees to avoid groups of six or more, and others are cutting all travel.

The economic effects are mounting. The Tokyo stock market fell 9.6 percent in the week. A major international hotel chain says it is operating at 40 percent of capacity, half the usual level, with the worst yet to come, while some restaurants in central Tokyo report a 50 percent decline in bookings. Major sporting events are also on hold with the Japan soccer league abandoning all its planned matches through March 15. The Tokyo marathon, which typically attracts some 30,000 runners from around the world, has been scaled back to only the small professional group. Even Tokyo Disneyland, one of the most popular resorts in the world, has shut its doors for at least two weeks.

Inbound tourism, which had been one of the big successes for the Abe government, is likely to be the biggest loser in all this. Chinese tourists, who accounted for 40 percent of spending by foreign visitors last year, have stopped coming, with tour groups now banned. South Koreans, already mad at Japan over trade restrictions last year, are also staying away in droves. Together the two neighbors accounted for almost half of the 32 million visitors last year.

There are also some murmurings that perhaps Tokyo is not the place to hold the Summer Olympic and Paralympic Games-if they're held anywhere in what may turn out to be a pandemic year. International Olympic Committee (IOC) member Dick Pound of Canada told the Associated Press that there is likely a two- to three-month window to assess the situation. That's not the official view, at least for now, with a spokesman in Tokyo saying that "with regard to this member's comment, the IOC has responded that this is not their official position, and that the IOC is proceeding with preparations toward the games as scheduled."

All this is slashing away at Abe's popularity. His approval rating, already hit by a number of scandals, took its biggest decline in two years, according to a Feb. 15-16 poll by Japanese news agency Kyodo News. It found the support level for Abe's cabinet was now 41 percent, down 8.3 points from the previous poll in January. Among those surveyed, 82.5 percent said they were concerned about the negative economic impact of the outbreak.

This follows something of a pattern in Japan, where despite an image of teamwork and an ability to pull out of tough times, voters typically blame their leaders for problems. Abe saw this in the summer of 2018, when torrential rains caused widespread flooding and landslides, leaving over 200 dead. A perceived lackluster response was met with a 46 percent disapproval rating, helping to push the government's overall rating down 7 points to 45 percent. Even more dramatically, the now opposition Democratic Party saw its fortunes hit by a perceived poor response to the earthquake, tsunami and nuclear emergency in March 2011. Despite bringing on a new prime minister, the party suffered a massive defeat in the December 2012 that brought Abe to power. It has never recovered since then and its successor party now polls at less than 10 percent.

Abe's carefully nurtured overtures to Xi may also face a setback with the possible cancellation of Xi's planned trip in April, the first by a Chinese leader since 2008. Officially, both countries insist the trip is still on.

Abe came under further criticism this week when he abruptly announced that the government was asking all schools in Japan to close until the end of the term in late March. Japanese media quoted education officials as being unaware of the plan, with one quoted as saying, "I can't believe it. There was no consideration for people at the schools." Children have been among the least-hit groups by the virus, and critics say the measure will only complicate the lives of medical workers and others who will now have to care for them.

The Abe team has managed to navigate such crises before, including a favoritism scandal over the sale of land to a nationalist elementary school supported by Abe and his wife. This time could be different, however. Abe's term as head of the ruling party is due to expire in September 2021, making the prime minister something of a lame duck. There had been talk that the rules could again be changed to keep Abe in power, but that has faded as the problems have mounted.

He could have one last rescue, however. One of Japan's key concerns is how to deal with a second Trump administration. Abe is seen as being deft at flattering Trump while trying to put off the president's demands on the trade and defense fronts for as long as possible. The recent Kyodo poll found that 71 percent expected an unfavorable impact on Japan if Trump is reelected. If that happens, some politicians have suggested that Abe might still be the best man for the job. His performance through the coronavirus crisis could turn out to be a defining moment of his years in power-whether he gets on top of the crisis or gets overwhelmed by it.

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Japan's Economy May Be Another Coronavirus Casualty

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TOKYO-The coronavirus outbreak could hardly have come at a worse time for Japan. The economy and Prime Minister Shinzo Abe's reputation have both taken a hit. Even the much-vaunted Tokyo 2020 Olympic Games that kick off in late July may be at risk. It was not supposed to be like this.

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Post #3 (3/2/2020): Peace Between Afghanistan and the US

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Post #3 (3/2/2020): Peace Between Afghanistan and the US

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This article is on the peace treaty that was signed between President Trump and the leaders of Afghanistan.  The US has promised to reduce their troops in Afghanistan, by next year, the hope is to have all troops out of Afghanistan.  This was a very historic moment considering the terrible relationship the US has had with the Middle-East.

This was a win for both sides, however the Taliban found it to be more of a win for them because they will be able to govern themselves without US interference.  This society is very resistant to Western Globalization; they are still very in touch with their culture and the US has not been able to influence the Middle-East as much as we would have liked.

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DOHA, Qatar-At the pyramid-shaped seaside luxury hotel in Doha where the United States and the Taliban signed their long-awaited agreement, the 100 or so black turbans in attendance occasionally fluttered in the wind. The bearded Taliban leaders nonetheless had cheerful looks on their faces. For them, the Americans' agreement to leave Afghanistan, even without any commitment to a cease-fire, was a declaration of victory for their side.

The United States has promised to initially reduce its troops from 13,000 to 8,600, and eventually remove them all, along with other coalition forces, within the next 14 months. The withdrawal is binding only if the Taliban keeps its side of the bargain, by not allowing any terrorist organization to again attack the United States or its allies from Afghan soil, as happened on 9/11.

Around 3,500 U.S. and coalition soldiers have died in the conflict; the number of Afghan deaths is estimated at more than 150,000. Both the administration of U.S. President Donald Trump and the Taliban have agreed they would now like to end their war. Far less clear is whether they have any common vision of the future.

Start with the Taliban's commitment to crack down on international terrorist organizations. Douglas London, a former CIA officer who was its head of counterterrorism in South and Southwest Asia, told Foreign Policy that the United States had little reason to trust the Taliban's leadership would carry out its promises. There's also reason to doubt Abdul Ghani Baradar, the mullah who signed the agreement on behalf of the Taliban (after having been released from a Pakistani prison in October 2018 after a push by the United States to get the talks going), is in a position to make commitments or grant concessions. "Doha-based representatives [Mohammad Abbas] Stanakzai and Baradar have little sway," London said.

He also warned against interpreting the drop in violence in Afghanistan in the seven days prior to the signing of the deal-in adherence with commitments made to the United States-as an indication of the Taliban's commitment to peace. "We shouldn't read too much into the reduction of violence last week because violence is always relatively low in winter with the fighting season commencing with the spring thaw," he said, referring to the annual change in weather conditions in Afghanistan. "The Taliban won't agree to a cease-fire anytime soon over concern that fighters would not return from a prolonged break, or some could switch allegiance to ISIS," he said, using an acronym for the Islamic State. Nevertheless, the Trump administration has chosen to believe that the Taliban is a cohesive group and that foot soldiers are following a centralized command.

The text of the deal also gives little indication of how to achieve reconciliation between the Taliban and the Afghan government, which the group still does not recognize as legitimate. According to the agreement, intra-Afghan talks will begin on March 10. Anas Haqqani, a recently released prisoner and the younger brother of Sirajuddin Haqqani, the leader of the Haqqani network which is a part of the Taliban, confirmed to Foreign Policy that the Taliban would engage in these talks. "On March 10, we will talk to all Afghans," he told me as he rushed out of the conference hall where the signing took place.

Qatar is one of the contenders to host those talks, along with Germany, Norway, Indonesia, and Uzbekistan. Qatari representatives, like those from the Taliban and Pakistan, were jubilant at the signing, seeing it as an endorsement of their own credentials as mediators. They were especially pleased to be seen to have succeeded where similar talks hosted by their great regional rival, the United Arab Emirates, failed. Qatar's top negotiator, Mutlaq Al-Qahtani, told Foreign Policy of his country's critical role. "We told the U.S. from day one to streamline the process of talks, consolidate the efforts if they wanted the process to succeed," he said. "There were many regional spoilers." He added: "It's an ongoing process, and we stand ready to support as needed."

It remains unclear how the deal will unfold in the coming weeks and months. Many fear that violence will return as winter ends. An initial impediment has already stalled further progress. While the U.S.-Taliban deal speaks of working "immediately" efforts to plan the release of 5,000 Taliban prisoners from the Afghan government's jails, in exchange for 1,000 held by the Taliban, the joint statement by the Afghan government and the United States says the "feasibility" of the prisoner release would be discussed once the March 10 talks are underway.

Meanwhile, some of the Taliban representatives in Doha inadvertently gave credence to fears of eventual backsliding of Afghan political freedoms. Ahmadullah Wasiq, a former Taliban fighter who flew in from Kandahar, spoke in positive terms with Foreign Policy about the education received by his daughters at an Islamic madrassa. He also professed to see nothing wrong with child marriage-including older men marrying girls under 14 years old-as long it has not been "forced" on the child.

There were, of course, no women in the 100-plus group of Taliban representatives that attended the signing ceremony. There was just one cleanshaven man, a Taliban lobbyist in the West who refused to reveal his identity, saying he wanted to be able to speak his mind without upsetting the bosses. "We are a very disciplined force," he said. "The Taliban is not and will never be ready for elections or women's rights as in the West."

"Actually, there is no agreement even among the Taliban on what sort of power-sharing, if any, or governance structure there should be," he continued. "Maybe something like Iran?" In Iran's political system, although there are elections between varieties of pro-regime politicians, the broader state policy is still decided by the supreme leader and his team of clerics. Some Taliban leaders say the group will push for a similar system to be adopted in Afghanistan, but with power vested in a Kandahar-based a mir ul- m omineen (leader of the faithful)-the title conferred on long-time Taliban leader Mullah Mohammed Omar. But in a country split by tribal loyalties and still ruled by warlords in many parts, it's unclear how a single religious leader can expect to command the respect of all Afghans.

The first and perhaps most important political battle to resolve, if and when the intra-Afghan talks happen, is the nature of the future Afghan state-a conversation that will inevitably become a debate about religion. The Taliban have repeatedly said they want a restoration of the Islamic emirate they claim to have created before the U.S. invasion. Afghanistan's current government says the existing constitution already establishes the state as Islamic, while also providing for a republic, and that any religious objections made by the Taliban to these arrangements are ultimately only self-serving.

For now, the Taliban are celebrating what seems to be a victory. Other Afghans, almost certainly the majority, are left to wonder whether they will survive their country's next round of Talibanization.

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The United States Wants Peace. The Taliban Wants an Emirate.

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DOHA, Qatar-At the pyramid-shaped seaside luxury hotel in Doha where the United States and the Taliban signed their long-awaited agreement, the 100 or so black turbans in attendance occasionally fluttered in the wind. The bearded Taliban leaders nonetheless had cheerful looks on their faces.

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Post #4 (3/18/2020): The Downward Spiral of the Economy

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Post #4 (3/18/2020): The Downward Spiral of the Economy

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This article is comparing our current economic struggle (due to COVID-19) to the recession of 2008.  It is too early to say whether this state of economic hardship is worse than 2008 or not.  However, experts have said that another recession is inevitable. Many companies are slowing down and so many people have lost their jobs due to this pandemic.
This article relates to globalization in the sense that the US economy affects other nation's economies as well. Our economy revolves around global businesses and with the stock market actually shutting down multiple times, that can be bad for our country and other countries as well.

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In May 2018, President Donald Trump restructured and downsized the pandemic preparedness unit. Of course, it seems ill-judged in retrospect. But he was not the first president to do so. The National Security Council's (NSC) global health security unit was set up under Bill Clinton in 1998. Years later, first George W. Bush and then Barack Obama would shut it down, only to reestablish it shortly afterward. The fact is that bureaucracies have never known how to treat low-probability, high-stakes biomedical risks like pandemics. They sit awkwardly within the conventional silos of modern government and models of risk assessment.

If this is true for the NSC, it is even more so for those charged with economic policymaking. Among the tail risks widely discussed in economic policy circles, a deliberate shutdown of national economies on the grounds of a public health emergency has never been seriously considered. Of course, we've spoken of "contagion" in financial crises, but we've meant it metaphorically-not literally.

In 2008, we saw how the financial uncertainty spreading from the downturn in real estate-by way of subprime to funding markets and from there to the balance sheets of major banks-could threaten an economic heart attack. It was this massive financial shock, piled on top of the losses to households from a downturn in the real estate sector, that caused economic activity to contract. In the worst of times, over the winter of 2008-2009, more than 750,000 job losses were recorded every month-a total of 8.7 million over the course of the recession. Major industrial companies like GM and Chrysler stumbled toward bankruptcy. For the global economy, it unleashed the largest contraction in international trade ever seen. Thanks to massive intervention of both monetary and fiscal policy, it did not become a deep and prolonged recession. After a contraction of 4.2 percent in gross domestic product, a recovery began in the second half of 2009. Unemployment peaked at 10 percent in October 2009.
[Mapping the Coronavirus Outbreak: Get daily updates on the pandemic and learn how it's affecting countries around the world.]
It is too early to confidently predict the course of the economic downturn facing us due to the coronavirus. But a recession is inevitable. The global manufacturing industry was already shaky in 2019. Now we are deliberately shutting down the world's major economies for at least several months. Factories are closing, shops, gyms, bars, schools, colleges, and restaurants shuttering. Early indicators suggest job losses in the United States could top 1 million per month between now and June. That would be a sharper downturn than in 2008-2009. For sectors like the airline industry, the impact will be far worse. In the oil industry, the prospect of market contraction has unleashed a ruthless price war among OPEC, Russia, and shale producers. This will stress the heavily indebted energy sector. If price wars spread, we could face a ruinous cycle of debt-deflation that will jeopardize the world's huge pile of corporate debt, which is twice as large as it was in 2008. International trade will sharply contract.

In the division of labor among different branches of economic policy, addressing the coronavirus recession is a classic task for targeted fiscal policy: tax cuts and government spending. What we need now is less stimulus than a comprehensive national safety net to prevent bankruptcies and long-term financial damage. Once we have survived the epidemic we will need investments in public health infrastructure big and small. Every country clearly needs hugely improved surveillance, modeling, and emergency facilities, as well as substantial reserve capacity. All of this, in due course, will offer excellent opportunities to productively spend money and create high-quality jobs. Unlike in 2008, there will even be sectors that naturally expand. Spending on health care, which already accounts for almost 18 percent of U.S. economic activity, will likely explode. With social distancing, we are, in effect, being mandated to resort to the impersonal delivery and conference systems of the Amazons and Zooms of this world. (If only we already had drones at the ready to deliver billions of care packages.)

But as in 2008, before we can tackle the recession, there is another threat to deal with: the risk of a financial heart attack. A recession is different from a panic. And a financial panic is what we began facing the week of March 8. It is that threat that continues to haunt the markets.

The immediate trigger was the breakdown of oil talks and Saudi Arabia's announcement of a price war. On top of the worsening coronavirus news from Italy, this shocked markets and induced a contraction in lending and a flight to safety. The demand for cash was insatiable. The reality began to sink in that what started as an external biological shock to the economy might be mutating into an internal collapse in confidence and credit.

A sudden credit crunch exposes those that have too much debt and weak business models and have taken excessive risk. Their distress spreads to the rest by way of business closures, job losses, and fire sales of otherwise good assets. Matters are made even worse if the economic victims have financed their activities with borrowing, such that their losses eventually strike the balance sheets of creditors that were unwise enough to lend to them. Fear of these repercussions contracts credit across the board.

In 2008, the banks were at the center of the storm. Given the consolidation of their balance sheets, it is less likely that America's big banks will run into difficulty this time. But Europe's banks never truly recovered from the double shock of 2008 and the eurozone crisis. Italy's public finances are in precarious balance. On Wall Street, fund managers of all kinds have been booking large losses and are facing huge demand for cash. A hard-pressed oil-producing country might be forced to offload assets from a sovereign wealth fund, thereby depressing prices for otherwise good assets and unleashing a chain reaction.

The most disconcerting sign has been the fact that as stock markets plunged, U.S. sovereign debt fell in price, too. That should not happen. Treasuries should function as safe havens. If their prices fall, it means that enough investors are desperate enough for cash to move even the biggest market.

Toward the end of the week, markets were hoping for goods news from the European Central Bank (ECB). Instead, bank president Christine Lagarde managed to make matters worse by seeming to signal that the ECB had no mandate to support Italy. She was forced to take the remarkable step of apologizing, not to Italy, but to her board. The Fed's measures, announced at an extraordinary press conference Sunday, were blunt: It dropped interest rates to zero, embarking on a fourth round of quantitative easing. It is broadly the same toolkit it used in 2008.

These are not policies tailor-made for the pandemic. But that is not the point. The point is to not address the impact of the pandemic. As the Fed and ECB have both insisted, that is a task for fiscal policy. Faced with the coronavirus pandemic, the limited but essential role of the central banks is to prevent the credit system from becoming a risk in its own right.

There has not been as much international coordination among the central banks as there eventually was in fighting the 2008 global financial crisis. But explicit coordination may not be necessary. We have spent enough time digesting the experience of the global financial crisis. Everyone knows the playbook, and everyone knows that the Fed must lead. The global financial system is dollar-based. And that is why the most significant step toward cooperation this past weekend was the announcement concerning the standing liquidity swap lines among the major central banks: the U.S. Federal Reserve, the Bank of Japan, the Bank of England, the Bank of Canada, the ECB, and the Swiss National Bank.

The swap lines in their current iteration were first put in place at the end of 2007 to ensure that funding in U.S. dollars was available not only for banks and financial actors based in New York but to the entire global financial system. In 2013, these channels were made permanent among the major central banks. The move this past weekend lengthened the term of the swaps and reduced the interest margin the Fed charges.

We used to worry that Trump and the Republican economic nationalists in his administration would challenge this ultimate expression of global central bank cooperation. After all, the swap lines mean that the Fed provides dollars on demand to its foreign counterparts-not something one would expect the "Make America Great Again" crowd to approve of. But it turns out that when you face a pandemic and you're arguing over whether it is safe to leave your home, no one cares about nationalist principles.

The Fed's actions did not stop the selling on financial markets, and it remains to be seen whether the policies will have to be widened. As each new bottleneck is revealed in the credit system, expect more action. First, the Fed increased its support for the repurchase agreement market, where Treasurys and other bonds are lent out for cash. Now, it is supporting the commercial paper market, where big businesses borrow money for three months at a time from investors like money market mutual funds. But the far more basic limitation of central bank action to date concerns the wider world.

The recent swap line measures apply only to the innermost circle of advanced economies. Although it was widened during the global financial crisis, even then only 14 central banks were given access to the Fed's drip feed of dollars. Amongst Emering Markets only South Korea, Brazil and Mexico were included. The rest were relegated to dependence on the International Monetary Fund. But since 2008, the boundary between the most sophisticated emerging market economies and their advanced economy counterparts has become increasingly blurry.

South Korea has so far weathered the storm in exemplary fashion. Its public health measures along with those of Taiwan appear to be the best in the world. But in a panic, money flows toward the center. So far, we have seen only the beginnings of a flow into U.S. dollar-denominated assets by investors. But several emerging markets are already coming under severe financial pressure. The outflow of foreign funds since the beginning of 2020 has been dramatic. In the past eight weeks since coronavirus fears began spreading, $55 billion has flowed out of emerging markets, a drain twice as large as that seen in 2008 or during the "taper tantrum" of 2013. This will exert severe pressure on countries like Mexico and Brazil, which have large populations, relatively weak public infrastructure, and fragile finances.

The real question concerns China. In 2008, China played a strong hand. It did not suffer a financial run. Its gigantic fiscal and monetary stimulus delivered a giant boost to both its national economy and those who export to it. No swap line was ever seriously contemplated between the Fed and the People's Bank of China (PBC). Since then, the PBC has established its own swap network. But that supplies renminbi, not dollars. Faced with a crisis that has forced the shutdown of a large part of the Chinese economy and will likely induce a dramatic contraction in global trade, the question is how large the demand might be for dollar funding on the part of China's globalized businesses. Since 2008, their activities abroad have expanded dramatically and, like other emerging market businesses, they borrow heavily in the American currency. China's official reserve managers have a large stock of dollars. But like other great reserve stockpiles, they are held not in cash but in U.S. Treasurys.

The last thing the world needs right now, given the uncertainty in Treasury markets, is for Beijing to be forced to liquidate that stockpile. That could offset all of the Fed's efforts to stabilize the U.S. government funding market. On the other hand, is it not easy to imagine the Fed taking Chinese currency as collateral for a large dollar swap. The Fed would not want to risk the ire of anti-China hawks in Congress.

Faced with a global health emergency and the common interest in maintaining economic stability, one can only hope that the technocratic imagination trumps the evident temptation on both sides to politicize the crisis.

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The Coronavirus Crash Isn't the 2008 Financial Crisis. It's Worse.

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In May 2018, President Donald Trump restructured and downsized the pandemic preparedness unit. Of course, it seems ill-judged in retrospect. But he was not the first president to do so. The National Security Council's (NSC) global health security unit was set up under Bill Clinton in 1998. Years later, first George W.