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Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University.
The U.S. is set to recover from the pandemic-induced recession faster than other rich countries thanks to its successful vaccination effort and copious relief spending. Though it might seem like weakness in the rest of the world will create a drag on U.S. growth, it actually provides an opportunity to increase exports.
In late 2020, what had been a rapid U.S. recovery slowed as a huge new wave of COVID-19 infections drove Americans back into their homes. Since then the U.S. has done surprisingly well at putting shots into arms, and new data suggests vaccines will be pretty effective even against the resistant strains now emerging around the world. When COVID no longer dominates the stage, American consumers will rush out to eat and shop and frolic, and the economy will be turbocharged. To top it off, the U.S. has been extremely generous with COVID relief spending, especially after the recent passage of Biden’s $1.9 trillion addition.
Other rich countries however, remain mired in the economic doldrums. Agonizingly slow vaccine rollouts in the European Union and Japan, coupled with a deeper initial impact of the pandemic in Europe, mean that the U.S. will return to its pre-pandemic growth trajectory well before its developed-world peers.
In fact, according to the Organisation for Economic Co-operation and Development, the U.S. is now the only major economy projected to exceed its pre-pandemic trend by the end of the year. That’s even better than China, at least in the relative sense.
In some ways, the last-man-standing status of the U.S. will hinder its recovery. A healthy Europe and Japan is generally good, as during normal times these countries buy American exports and send tourists to spend their money in the U.S. For at least a good part of this year, much of that revenue will remain off the table.
It’s not all downside, though. A quick U.S. recovery also means a strong rebound in domestic manufacturing, both from revived local demand and from the fact that vaccinated workers will be able to go back to work with fewer costly safety precautions. And that will put the U.S. in a good position to supply the rest of the rich world with goods. Even though demand inside those countries is still suppressed by the pandemic, local supplies will also be suppressed, offering an opportunity for American exporters to step in.
The reason I know this could work is that it’s exactly what China has been doing with the U.S. During 2020, as China succeeded in suppressing the virus while infections grew in the U.S., the trade imbalance between the countries soared. Stuck in their homes, American consumers shifted from buying services to buying manufactured goods, and China was willing and able to supply those goods.
Some of that imbalance may now abate as the U.S. shifts back toward demanding services and China is slowed by austerity and a weaker-than-expected vaccination effort. When American consumers start spending their dollars at restaurants instead of just on Amazon.com, U.S. manufacturers will be looking for customers for their goods, and the rest of the world, even while still weighed down by coronavirus, could provide those markets.
The U.S. has a limited window to make the most of the situation, and it should be promoting exports vigorously over the next year. Explicit export subsidies are banned under World Trade Organization rules (the U.S. might consider whether breaking those rules would be worth the consequences). But there are many ways in which implicit export subsidies can be substituted for explicit ones, including tax breaks, cheap trade financing, assistance with marketing, subsidized training for workers and extension services.
The effort would also dovetail nicely with President Joe Biden’s plan for reshoring American industry and consolidating supply chains in the U.S. Helping manufacturers export and cajoling foreign-invested companies to return home during the waning stages of the pandemic can provide valuable lessons in which policies work and which don’t. Those lessons can then be applied in the longer struggle to keep the U.S. economically relevant in an age when global economic activity is shifting to Asia.
So the U.S. should take full advantage of this brief interregnum. Its stellar vaccine effort and stimulus have allowed it to jump ahead; now the country should use that time wisely to improve its competitive position for the longer term. Just as in the late 1940s and 1950s when the rest of the world was rebuilding from World War II, this is the chance for the U.S. to power ahead.