How COVID-19 Affected the USA Economy as a Whole

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Subject: How COVID-19 Affected the USA Economy as a Whole
Introduction
The COVID-19 pandemic caused widespread panic and a decrease in global stock markets. Businesses closed, people lost their jobs, and governments struggled to provide aid. In some countries, such as Italy and Spain, the pandemic caused a complete shutdown of the economy. In others, such as the United States, the economy suffered but was not completely shut down (Albulescu). The pandemic also caused a significant increase in the number of people who became ill or died from the disease. The number of people who became ill is 490 million globally and 82 million alone in the USA. The number of people who died from the pandemic ranged from 1 million in the United States to 6 million globally (Worldometers).
The COVID-19 pandemic had a significant impact on the USA economy. The first effects were seen in the travel and tourism sector, as people avoided traveling in large numbers. It led to a decline in spending and a fall in employment. The pandemic also significantly impacted the manufacturing sector, as firms halted production and laid-off workers. The fall in demand led to a decline in prices and increased inventory levels. The pandemic also harmed the stock market, as businesses were forced to sell their assets at a lower price. Overall, the COVID-19 pandemic significantly impacted the USA economy and caused significant economic hardship for many people (Ceylan et al., 820). The paper discusses how COVID-19 has affected the US economy, what impact COVID-19 has on the USA economy, and what impact the trade balance can be seen. Further analysis is seen on the impact of COVID-19 on imports and exports in/out of the USA. Some businesses benefitted from COVID-19, and some faced severe loss and discussed in the report. It would allow an in-depth analysis of the economy to improve financial performance and economic growth in the long run.
Effects of COVID-19 on the USA Economy
The COVID-19 pandemic is having a significant impact on global economies. The lockdown measures that have been put in place to contain the spread of the virus are causing a significant slowdown in economic activity. It is likely to cause a recession in many countries. The impact of the virus is also causing a sharp rise in unemployment and a decline in consumer spending. The stock market is also experiencing significant volatility. The global economy is expected to recover from the impact of the virus in the long term, and it takes several years for the economy to return to its pre-COVID-19 levels. For example, The economic impact of the COVID-19 pandemic in India is likely to be significant. The lockdown measures that have been put in place are causing a significant slowdown in economic activity. It is likely to cause a recession in many countries. In India, the impact of the virus caused a sharp rise in unemployment and a decline in consumer spending. The stock market is also experiencing significant volatility. The global economy would recover from the impact of the virus in the long term, but it is likely to take several years for the economy to return to its pre-COVID-19 levels.
The NBER analysis shows a reduction in the GDP in the first quarter of 2020 by 5.1% compared to the previous year. The COVID-19 pandemic had a significant negative impact on the USA economy. The most immediate effect of the pandemic will be a sharp decline in economic activity as businesses close, workers are laid off, and consumer spending falls. It leads to a sharp increase in unemployment and GDP decline. The long-term effects of the pandemic will include a decline in investment and a slowdown in innovation as businesses put off new projects. The pandemic will also lead to a decline in housing prices, as people fear buying or selling property. Many businesses shut down during the period, and the economy was contracted by 31.2% in 2020. No quarterly GDP reduction was seen more than 10% since 1947. Overall, the COVID-19 pandemic will significantly negatively impact the USA economy (Amadeo).
The 2020 recession is considered the major one because, when the economy grew in the third quarter of 2020 by 33.4%, that loss could not be compensated. The impact was also seen in unemployment, where 6.6 million Americans filed for unemployment insurance. The unemployment rate was 14.8% in April 2020, which gradually decreased to 6% by December 2020. The immediate effect of COVID-19 was seen in the business closures, where 43% of the businesses were closed, and almost 75% of the businesses did not have enough money to survive for the next two months. The US economy is entirely shifted toward the work-from-home economy, where 42% of the USA worked from home full-time, and the number of employees worked twice from home rather than in the business place (Amadeo). However, the issue with working from home is that most people had to share room and poor internet connections, due to which they could not participate in video conference calls.
The Federal Reserve has moved the strategy to ensure banks and businesses have massive money because the pandemic had a lasting economic effect. The Fed has reduced the interest rate to 0% and 0.25% and zero reserve requirements. It enabled banks to lend deposits and not keep anything in reserve. The bank lending rates were 2.71% in early December 2020. Another effect on the housing market is the “race for space” despite high unemployment rates. During the period, the builders set a low level of housing inventory during the 2008 financial crisis, and in 2020, millions of Americans were at risk of losing their homes. Above 20 million renters lost their jobs and government-mandated eviction only 30% of renters before losing their homes (Amadeo). The purpose is to increase the challenges of finding a job as it struggles to pay mortgage and risk foreclosure without rental income.
Congress has provided financial relief to families, and 42 trillion aid was provided for relief. The federal budget deficit was $3.3 trillion, three times higher than the 2019 deficit. The CBO has predicted a budget deficit of $2.3 trillion, the second-largest since 1945. There is a $900 billion aid package in stimulating payments to taxpayers. The global oil prices were average of $64 per barrel in January; however, the pandemic has reduced the global demand due to restricted travel. The oil prices in April 2019 have increased to $19 per barrel due to an imbalance affecting the futures market (Amadeo).
It has impacted not only the US economy but also the economies globally. For example, China exported over $14 billion of masks, $9.9 billion of portable computers, and $83 billion in Cell phones. The economic effects are felt worldwide, as businesses are forced to close, and workers cannot travel (Hidalgo). It is likely to significantly impact global trade, as goods and services become more expensive and difficult to transport. It will be interesting to see how the virus continues to affect trade in the coming months.
The government’s response to COVID-19, including canceling many flights and public events, has caused a further decrease in the economy. It is difficult to predict precisely how the economic decline due to COVID-19 in the USA will play out, as many factors are still unknown. However, it is likely that this decline will continue for some time and may even worsen in the future. To help mitigate or recover from this situation, individuals and businesses should take steps to protect themselves from COVID-19 infection (such as by getting vaccinated) and keep a close. Figure 1 shows the monthly exports since January 2020 and shows that the exports of China are increased from Apr to August 2020, whereas the exports of the USA and Germany are declined, as presented in figure 1:
Figure 1: Monthly Exports Since January 2020
(Source: Hidalgo)
Many factors have contributed to the decline in the economy due to COVID-19 in the USA. Some of these factors include:
* The closure of businesses and lack of consumer spending due to widespread panic and fear over the virus
* The lack of travel as people are afraid to fly or take public transportation
* The lack of production as factories have been closed due to staff shortages or concerns over the virus
* The decrease in investment as people become more cautious about what they invest in
* The decrease in the value of assets, homes, and businesses, as a result of the decline in the economy
* The increase in unemployment and poverty rates as people lose their jobs or are unable to find new ones
* The increase in prices for goods is due to decreased production and increased demand (Maital 7).
Effects of COVID-19 on the US Trade Balance
A trade balance is a difference between exports and imports of goods and services. A country with a trade surplus exports more goods and services than imports, whereas a country with a trade deficit imports more goods and services than exports. When a country’s trade balance is negative, it is said to have a trade deficit. For example, if a country exports $10 billion worth of goods and services but imports $11 billion, its trade balance would be negative $1 billion. The country has exported more goods and services than it imported and has incurred a trade deficit of $1 billion (Cheng, 23). Conversely, if a country exports $10 billion worth of goods and services but imports only $9 billion, its trade balance would be positive $1 billion. It shows that the country has imported more goods and services than it exported and has incurred a trade surplus of $1 billion.
The US trade balance will worsen in 2020 due to the global pandemic. Imports are projected to decline as businesses reduce their spending, while exports decline due to reduced global demand. The trade deficit is expected to increase from $622 billion in 2019 to $746 billion in 2020, as shown in figure 2. It will harm the US economy, reducing GDP growth and increasing the trade deficit. The US trade balance has worsened in the past due to pandemics such as SARS and H1N1. The global pandemic is expected to have a similar effect on the US trade balance, with imports declining and exports declining due to reduced global demand. GDP growth is also expected to be reduced by this impact (FRED). Overall, the global pandemic has hurt the US economy and trade balance.
Figure 2: Trade Balance
Source: (FRED)
There are a few reasons why imports declined more than exports during a recession. First, when people have less money to spend, they might buy fewer goods from other countries, leading to a decline in imports. Additionally, some companies have reduced their exports during a recession to focus on selling goods in the United States, and it led to a decline in exports, but not necessarily a decline in imports (FRED). Finally, a recession had caused the dollar’s value to decline, making it more expensive for companies to buy goods from other countries, and it could lead to a decline in both imports and exports.
Overall, the different nature of the US recessions has explained why imports declined more than exports during the two recessions that occurred between 2019 and 2020. Graph 1 further indicates huge differences between exports and imports, leading to a considerable trade balance. During the COVID-19, the US exports have reduced compared to imports which have expanded the trade deficit. The differences are due to the diverse nature of the two recessions. There is increased demand for imported essential medical goods to decline less than in a typical recession because of decreased economic activity of social distancing and policies.
Imports and Exports of the USA
The COVID-19 pandemic has had a significant impact on global trade. The United States is a significant importer and exporter of goods and services. In 2018, the United States exported $2.3 trillion in go...