Trump faces a 'Chernobyl moment' after slashing pandemic defences

London: Three weeks ago there was much talk of a "Chernobyl moment" for China's Communist Party, discredited by totalitarian attempts to suppress news of the spreading coronavirus in Wuhan. But fast-moving events can play wicked tricks, especially on a White House allergic to scientific facts.

The new coronavirus, or COVID-19, is more likely to be the Chernobyl moment for US President Donald Trump. His systematic destruction of the US pandemic defences - policy vandalism of the first order - and his surreal efforts to conjure away the virus with denialist spin suddenly brings an unthinkable prospect into play.

President Donald Trump holds up a document during a press conference on the US preparedness for the new coronavirus on Wednesday.Credit: Bloomberg

The coming backlash may sweep presidential hopeful Bernie Sanders into power on a socialist manifesto of Piketty wealth taxes, the partial closure of the US oil and gas industry, and vast increases in the size and role of the US government, all with an implicit budget deficit of $US3 trillion. Try feeding that into your models for GDP growth, equity prices, or bond yields.

The Trump administration has cut funding for the US Centre for Disease Control (CDC) by 9 per cent. This month he proposed slashing it a further 16 per cent. The worst hit area has been pandemic preparation. The CDC's global health security initiative has been chopped by 80 per cent.

'It has been a primitive war on science.'

Trump got rid of the US Complex Crises Fund. He shut down the pandemic and global health machinery at the White House. He tried to cut the budget of the National Institutes of Health - the world's finest concentration of science - by 20 per cent in 2018, and by 27 per cent in 2019. Congress stopped the worst but damage has been done. It has been a primitive war on science. Trump's cuts have nothing to do with fiscal austerity. They happened just as he was pushing through tax cuts and driving the US cyclically adjusted budget deficit to 6.3 per cent of GDP (IMF data), spraying money with Peronist abandon. The White House did announce a $US2.5 billion ($3.7 billion) Coronavirus emergency fund this week to be used on vaccines, treatment and protective equipment. But the science cuts were ideological.

And now the White House has a pandemic on its hands. Don't be fooled by the seemingly low numbers of infections in the US (60 at time of publication): by Wednesday the country had tested only 426 people. Only three of the 100 public health labs even have working test kits. One reason why South Korea appears to have so many cases is because it has carried out 44,981 tests. "They are looking, so they are finding," says Professor Caitlin Rivers from Johns Hopkins University.

Donald Trump with Vice-President Mike Pence whom he appointed to lead the US government's coronavirus response. "You don't want to see panic because there's no reason to be panicked."Credit: Bloomberg

Dr Nancy Messonnier, head of the CDC, is doing her best. On Tuesday she said COVID-19 could not be stopped and that public policy would have to switch from containment to mitigation (already Japan's policy).

"It's not so much of a question of if this will happen... but a question of when this will happen. We are asking the American public to prepare. This might be bad," she said.

The White House will have none of this. The virus is "very much under control" and a vaccine is close, tweeted Trump. "The stock market is starting to look very good".

Up to a point, Lord Copper. The key indexes on Wall Street have this week fallen through the first key lines of technical support. Nomura says global macro hedge funds have changed strategies overnight since COVID-19's global breakout, switching to trades that "prepare for a global recession". It is the same message from record low yields on 30-year US Treasury bonds.

Larry Kudlow, the White House economics chief, persists bravely. The US containment of the coronavirus has been "pretty close to airtight". Growth in the US will be unscathed, but "China is going to take an awfully big hit".

Has nobody told him that US firms with tight supply chains are fast running down their inventories, or that the full effect of cancelled container shipping from Chinese and east Asian ports has not yet been felt? Little is returning to normal. China's economy remains closed and there is a critical shortage of workers at ports.

A commuter wears a protective mask in San Francisco.Credit: Bloomberg

The Baidu index shows that 70 per cent of migrant workers have not returned to the big cities since the lunar new year. Coal use at major power plants is down by half. The longer this goes on, the greater the global economic shock, even if you believe the fairy tale that COVID-19 won't cross the oceans. Undaunted, the Trump camp is putting out the message through talk radio and on the Hill that virus chatter is scaremongering by political opponents. On Tuesday the head of US homeland security, Chad Wolf, told a stunned Senate committee that the death rate of COVID-19 is akin to normal winter flu.

Actually the average flu death rate is around 0.1 per cent. Tracking data from China shows a 4.0 per cent mortality rate in Wuhan, 2.8 per cent in Hubei province, and 0.8 per cent in other regions, but rising. The ratio rockets for the late-middle aged and elderly.

Furthermore, only a small fraction of people contract flu each year because the rest are vaccinated or have acquired immunity from past flu infections. There will be no COVID-19 vaccine for months. Nobody has immunity.

The Trump administration is taking an insane political gamble by pitting itself against the CDC and against the US fraternity of virologists. It will lose this bet. I also suspect the new coronavirus will expose deep failings within the US healthcare and insurance system.

Many poor Americans without coverage or Medicaid will try to tough it out at home rather than risk ruinous medical costs. Illegal immigrants will avoid the health surveillance system for fear of being deported. The disease will spread in these distressed pockets before sweeping the leafy suburbs.

The only way to slow the internal contagion is to offer free testing and care, as Singapore is doing in what has become the world's gold standard regime for this crisis.

If the CDC is right and a US epidemic is on its way, the unfolding drama and shocking death rate will work to the advantage of Sanders in the Democratic primaries. It will shatter Republican claims to competence and could conceivably propel the firebrand into the White House with a majority in both houses of Congress. Just wait until the global macro funds sink their teeth into that prospect.

What are the Dow index and the S&P 500 worth in a global economy facing - potentially - the worst "sudden stop" since August 1914, and a new America led by a president Sanders with a mandate for socialist upheaval? Let's be generous and say about half of current levels.

The Telegraph, London