May 8, 2020 11:14AM

It Would Be Great to “Make China Pay” for COVID-19, But the Price Could Be High

Many of us hoped that economic liberalization in China would encourage political reform. The country did change dramatically: Maoism was tossed into history’s trash bin, while personal autonomy and economic opportunity greatly expanded.

Unfortunately, with Tiananmen Square the Chinese Communist Party decisively chose repression. Nevertheless, even though the regime remained authoritarian, academics, independent journalists, and others could debate ideas as long as they avoided directly challenging the CCP. The regime’s control remained somewhat loose, giving hope of long‐​term improvement.

Everything changed under Xi Jinping, who has turned the country in an aggressively authoritarian direction. The crackdown has been brutal: widespread religious persecution, a million or more Uighurs in reeducation camps, much tighter internet controls and social media censorship, elimination of independent media, restriction and elimination of academic freedom, and attempt to suppress any independent political thought. The PRC’s foreign policy also has grown more aggressive, particularly toward Taiwan, Hong Kong, and territorial disputes.

Into this volatile environment has come the COVID-19 crisis, which, I note in Foreign Policy online, “has greatly inflamed anti‐​China sentiments in a dangerous and counterproductive way. The Xi Jinping regime responded badly, missing an opportunity to isolate Wuhan early and perhaps prevent the emergence of a pandemic. Beijing’s ham‐​handed propaganda afterward, including attempts to blame the United States for the virus, created additional antagonism.” Worst was failing to share information internationally and punishing doctors and citizen journalists who tried to report on facts on the ground.

Wanting to “make China pay” is an understandable impulse for Americans, but treating the PRC as a campaign prop is no answer. As I point out: “Beijing deserves criticism, though that would be best delivered with multilateral backing in a nonpolitical setting. Washington has an opportunity to build on global anger toward China and especially the CCP but risks losing the moment by shamelessly seeking partisan gain.”

As I explain in Foreign Policy, almost all of the ideas being advanced by the administration and its allies are bad. One is limiting or eliminating sovereign immunity, which would loose lawyers upon Beijing. The impact might be worse than a swarm of locusts hitting a farm, but it would set a precedent for the PRC and other states to do the same to America. As the most globally active nation—routinely sanctioning, droning, bombing, invading, and occupying others—imagine the potential litigation and demands for damages that could be made against Washington.

Other schemes are no better. Raising tariffs would punish American consumers who would be doing the paying. In essence, Washington would be taxing Americans to compensate Americans. A very stupid idea, as the president might say.

Limiting repayment on or repudiating debt held by the PRC likely would lead Beijing to retaliate against private U.S. investment. That’s not all, I warn: “voiding Chinese holdings would lower barriers to international debt repudiation. If the United States politicizes its debt, it would make foreign borrowers more willing to follow suit. Worse, buyers, private investors, sovereign wealth, and governments would be more reluctant to purchase U.S. securities.” Indeed, the U.S. already has politicized its control of the financial system with sanctions, even targeting nominal allies. No one has any reason to trust Washington.

Finally, launching a full‐​scale economic war would have unpredictable but likely dangerous consequences. I warn: “While economic conflict does not guarantee military confrontation, the disintegration of commercial cooperation and contact that once provided the glue in the relationship between very different systems would yield an incendiary environment.” Moreover, the U.S. would be attempting to conscript other countries into its anti‐​China campaign, spreading great power conflict around the globe. When forcing them to choose Washington might not be pleased by many of their responses.

The PRC poses a serious challenge to American values and interests and requires a response, but one that is thoughtful, nuanced, and targeted, not the product of a desperate presidential reelection campaign. As I conclude my Foreign Policy article: “a crusade to make China pay, no matter how appealing politically, would backfire badly. Consciously blowing up a relationship already under great strain would be worse than irresponsible. It could become the trigger for a new cold war or worse.”

May 8, 2020 10:13AM

Private School COVID-19 Permanent Closure Tracker

All schools will likely suffer in the COVID-19 recession. But as recently discussed, private schools as a whole are likely to suffer worse consequences than public: not just cutbacks, death.

Cato’s Center for Educational Freedom has begun tracking private schools that are going out of business—not just temporarily closing their buildings—at least in part due to COVID-19. “At least in part” because many private schools perennially get by on shoestring budgets as they try to compete with “free” public schools. That means they are often in precarious financial situations. And, of course, some private schools are not all that good, have been rocked by clergy scandals, are facing demographic changes—many things affect any given school. In other words, the COVID-19 recession may just be the final nail in a school’s coffin. But it is a huge nail driven by a jackhammer.

All the schools below have announced upcoming permanent closure at least somewhat driven by COVID-19 financial impacts:

Private school permanent closure 5/8/20

We will update this list in a blog post every Friday for the foreseeable future, but if it gets long enough we will likely move it to a more user‐​friendly, searchable form. You can contact CEF director Neal McCluskey if you need more current numbers, if you know of permanent closures not on the list, or if you believe schools have been listed by mistake. We also welcome suggestions for information to improve the list.

May 8, 2020 10:09AM

Two Supertypes of Coronavirus: “East Asian” and “European”

By Andrei Illarionov and Natalya Pivovarova

The Los Alamos National Laboratory has posted a new study, as reported this week by the Washington Post and the Los Angeles Times, that finds that the strain of the novel coronavirus that emerged in Europe and has spread to much of the world is different than the strain of the virus at its origin in China. Those findings are consistent with our research which we posted (in Russian) on April 15, 2020. Although we are not epidemiologists, we are posting our slightly updated analysis below in English in the interest of sharing what may be significant findings with a wider audience. We welcome the scrutiny and consideration of the epidemiology community and hope that our analysis and any corrections or critiques to the below will help advance our knowledge.

From a microbiological point of view, there are several varieties of the SARS-CoV-2 coronavirus. But from the epidemiological point of view, the world is dealing with two distinctly different supertypes of the coronavirus – the so called “East Asian” and “European” ones.

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May 8, 2020 10:04AM

“Neither Party Is Right, But the Ninth Circuit Is Wrong”

The Supreme Court yesterday released a unanimous opinion in United States v. Sineneng‐​Smith. If you go by the briefs and arguments, the case concerned a First Amendment challenge to a criminal ban on the solicitation or encouragement of illegal immigration. Cato filed a brief arguing that the statute was unconstitutional. The Court, however, did not reference our argument, or that of either party for that matter. Instead, the Court vacated the lower court’s ruling, which found the statute unconstitutional, based on the “party presentation” rule.

The party presentation rule requires that courts only decide issues squarely presented by the parties, here Evelyn Sineneng‐​Smith and the United States. While Ms. Sineneng‐​Smith argued at trial and on appeal that her conviction violated the First Amendment, she did not specifically make an “overbreadth” challenge — that even if the statute covers her behavior, it goes too far and could punish protected speech, like a lawyer advising a client or even think tank scholar advocating for policy reform.

After hearing her case, the U.S. Court of Appeals for the Ninth Circuit raised the overbreadth issue by itself, asking several immigrant‐​rights groups to brief and argue it as amici curiae. Then the court accepted that argument, as did Ms. Sineneng‐​Smith when the Supreme Court took the case. The government in turn argued squarely against the overbreadth argument, without suggesting that the Ninth Circuit was procedurally wrong.

While it may be ironic that the Court decided the case on the party‐​presentation principle, without that principle being presented by either party, it is not unheard of and isn’t necessarily a bad thing — even if we’re disappointed that the decision wipes out a good First Amendment ruling. The party presentation principle is part of a species of procedural rules limiting court jurisdiction, preventing courts from overstepping their own authority by inventing controversies that the parties don’t ask them to resolve. 

Of course, the Court didn’t explain how or why it reached this result without even asking about this potential jurisdictional defect at oral argument or calling for further briefing. It could be that the justices were intractably splintered on the merits of the case and didn’t want to release an opinion with no majority rationale.

Regardless, yesterday’s decision emphasizes that courts may not act on their own to determine legal answers to questions not presented to them — unless it’s the rare case where an issue arises that’s necessary to reach in order to resolve the original controversy. Justice Ruth Bader Ginsburg’s opinion adds a two‐​page appendix detailing such special cases in recent years, where the court has called for further briefing (only asking amici to argue when the original party has abandoned its position or otherwise is unwilling to defend a lower court ruling).

In sum, Sineneng‐​Smith did not provide the expected clarity on the scope of First Amendment protection for advising potentially unlawful activity, but it could become a powerful arrow in the quivers of attorneys seeking en banc or Supreme Court review of adventurous circuit panels.

May 7, 2020 11:26AM

Subject to a Trump Ban or Not, Everyone Stopped Traveling

President Trump has touted his travel “bans” as early measures to stop non-U.S. citizens from entering the United States during the COVID-19 pandemic. Yet government data obtained by the Cato Institute show that travel declined nearly as quickly among U.S. citizens, noncitizens with less severe bans, and domestic travelers. Rather than early efforts to slow travel, Trump’s bans coincided with the existing trend. They may have sped the decline of total noncitizen international entries relative to domestic travel by at most two or three days.

Figure 1 compares the change in international air travel by non-U.S. citizens (those targeted by bans) to domestic air travel, as measured by Transportation Security Administration throughput minus international departures, from March 1 through April 7 (the last day in the international arrivals dataset that the government shared with Cato). During this time, the president imposed entry bans on most non‐​citizen travel from Iran (3/3), Europe’s Schengen Area (3/14), Ireland and Britain (3/17), and nearly all new visa applicants worldwide (3/20).

Yet the difference between non-U.S. citizen international air entries and purely domestic air travel is minimal. The decline in noncitizen international entries surpassed 25 percent on March 9, while domestic travel reached that mark the next day. The difference for the 50 percent threshold was 3 days, but both reached 75 percent on the same day: March 19. It took domestic travel until March 25 to drop 90 percent below its prior level, compared to March 23 for noncitizen travel from abroad. By April 7, non-U.S. citizen entries had fallen 98 percent compared to 96 percent for domestic travel.

Figure 2 compares noncitizen travel depending on the severity of the travel restrictions for three categories of countries: 1) Europe’s Schengen Area plus the British Isles where the administration imposed the strictest restrictions: bans on entry (March 14 and 17, respectively) that included most existing visa holders and visa exempt noncitizen travelers; 2) countries where all noncitizens must have visas to travel and where visa issuances were suspended on March 20 (excluding China where an entry ban occurred on February 2), but where existing visa holders and visa exempt travel could continue; and 3) Visa Waiver Program countries not in Europe or the British Isles which were not subject to entry bans (more than 90 percent of the travel from there is visa exempt).

As Figure 2 shows, travel fell among all three groups by more than 95 percent: 97 percent for countries where a visa was required, 98 percent for countries where a visa was not required and there was no entry ban, and 99 percent for Europe and the British Isles where an entry ban was in effect. The most gradual decline was for countries where a visa was required, which makes sense because it was the last “ban” imposed, and it only applied to new visa applicants, not current visa holders. What’s more interesting is the comparison of Europe to the other Visa Waiver Program countries. The declines were similar and again just days apart, despite 90 percent of the travel from these other Visa Waiver Program countries being visa exempt.

Figure 3 shows U.S. inbound international air travel for U.S. citizens and noncitizens from various countries, outbound international travel, and domestic travel. The overall impression is that no matter how severe the restriction, everyone stopped traveling by late March. The entry bans on Europe and the British Isles preceded the decline in travel from other countries and domestically by just a few days. By April 7, no type of travel declined by less than 95 percent—whether it was subject to a U.S. travel restriction or not.

Americans and foreigners alike aren’t traveling for many reasons during the COVID-19 crisis. Some of these reasons may be governmental policies other than the Trump ban. Other countries have enacted restrictions on travel in or out. Stay at home orders may influence people to avoid air travel. But likely the most important reason is the most obvious: the virus. COVID-19 has spread and so has fear of it. People don’t want to contract the disease, so they aren’t traveling—even if the law allows them to.

May 7, 2020 11:22AM

What Are the Global Ambitions of the Chinese Government?

In a blog post entitled “It Is Time For a Libertarian Case Against China,” Tanner Greer responds to a piece in Reason magazine by Dan Drezner, in which Dan argued that “There is No China Crisis.” Greer says that libertarians need “to take the [China] problem with the seriousness it deserves.”

Not that it matters much, but if he wants to make “a libertarian case against China,” is Greer even a libertarian? Kind of, sort of, maybe, but not really. He says:

I like libertarians and libertarianism. I can’t bring myself to identify as one, but someone recently described me as “libertarian adjacent,” and I will not dispute the label.

But regardless of whether Greer identifies as a libertarian, the issue of how to deal with a rising power that is authoritarian and looking to expand its influence in world affairs is certainly one of the biggest foreign policy challenges the U.S. government faces. We do need to take it seriously. (And if you read Dan’s piece, I think it’s clear that he does take it seriously, in the sense of offering thoughtful and nuanced analysis). How people in the United States (including, but not limited to, libertarians) think about this issue is extremely important. Having gotten so many of our foreign policy challenges wrong in recent decades, it would be nice to get this one right.

But in order to think about it clearly and rationally, we need to understand exactly what China’s goals are, in particular in the global arena. This post won’t answer that question fully, because it would take much longer than a blog post to do so. But we do want to push back on some of Greer’s characterizations, which reflect the overheated rhetoric of many China hawks. Greer says this about President Xi Jinping and the Chinese Communist Party:

What [Liza] Tobin describes as “a new path to peace, prosperity, and modernity” … Xi has variously described as “Chinese wisdom and a Chinese answer to solving the problems of the mankind,” “a new [achievement] … in the history of the development of human society,” a “new and greater contribution to mankind,” and “new advance in political civilization.”[8] Notice the scope of what the Party hopes to reshape. They hope not to remake China, nor even Asia, but “human society,” “civilization,” and “mankind.” As Politburo member Yang Jiechi exhorted in 2018, the time has come for the Party to “energetically control the new direction of the common progress of China and the world.” [9]

Clearly, then, based on this language, China is out to dominate the world, right? Not so fast. First of all, relying too much on official government statements (of any government!) may be a mistake, in part because governments have many audiences in mind when they speak (importantly, their own citizens). But if you are going to use them, you need the full context. In the first sentence that Greer quotes, Xi does, in fact, use the quoted words. But when you read them in context, you don’t get the impression that the Communist Party hopes to “remake,” as Greer puts it, “human society,” “civilization,” and “mankind.” For example, the speech by Xi says this: “The Communist Party of China strives for both the wellbeing of the Chinese people and human progress. To make new and greater contributions for mankind is our Party’s abiding mission.” That sounds like the usual generalities of a government’s public relations campaign rather than an objective of remaking the world.

And with regard to the phrase “energetically control the new direction of the common progress of China and the world,” translations are difficult, and word choices between languages are not always clear, but we offer this translation of the broader passage at issue:

We (China) should have a profound insight into the new developments in China and the world, fully understand the new connotations of China’s relations with the world, accurately grasp the new law of interaction between China and the world, and proactively drive the new direction that China and the world are heading together.

Again, this seems like somewhat normal and expected government‐​speak. 

So what are the actual goals of the Chinese government in world affairs? That’s an area where we need more analysis from unbiased experts. For security hawks, it’s very convenient to have found a new “existential threat” that can justify a confrontational foreign policy and more military spending. But in order to craft the appropriate policy here, we need to get past the self‐​serving assumptions of certain members of the foreign policy establishment, and sort out exactly what we are dealing with in terms of the Chinese government’s global ambitions. The “case against China” needs examining, but an over‐​excited rush in one direction could be very damaging (and has been before).

May 7, 2020 11:07AM

The COVID-19 Reallocation Shock

Much of the pandemic economic policy response around the world seemed designed to freeze the economy of March 2020. Existing employment relationships were subsidized, businesses were granted loans to encourage them to protect payrolls, and bailouts sought to keep existing industries on the road.

Such policies had a clear and understandable rationale: to preserve existing economic relationships. When it came to jobs, the thinking was that widespread layoffs would lead to substantial skills mismatches, creating vast inefficiency. Many believed the pandemic would be like an extended vacation and we could just pick up where we all left off by providing bridging support to businesses and households today. In this frame of thinking, layoffs and rehiring would be needlessly economically wasteful and prolong the pain of the pandemic shock.

That was always extremely optimistic. Economies are both dynamic and organic, with a constant churn of jobs and companies even in normal times. There was also huge uncertainty about the duration of this pandemic. Preserving the March 2020 economic structure would therefore come with ever‐​escalating costs. 

The huge risk with this approach, however, was that the pandemic itself would induce much greater economic change than usual. If it brought substantial permanent or semi‐​permanent alterations in behavior or tastes, then subsidizing businesses to protect existing jobs or business practices would actually slow the jobs recovery. As the economy woke up to new realities in a changed world, we’d want workers and capital to be reallocated to where they are most productive as quickly as possible. Programs that delayed or disincentivized this reallocation would then become extremely costly.

That take is the conclusion of a new paper published at the Becker‐​Friedman Institute by economists Jose Maria Barrero, Nick Bloom, Steven J. Davis. Reviewing the Survey of Business Uncertainty, they find:

  • That a measure of job reallocation across businesses was 2.4 times higher in April than the average value pre‐​pandemic, suggesting a major COVID-19 induced jobs reallocation.
  • That between March 1 and mid‐​April, the COVID-19 shock had led to 3 new hires in the near term for every 10 layoffs, showing substantial reallocation of workers already as demand patterns change already (think grocery stores, Amazon, hand sanitizer producers etc).
  • That using historical evidence of layoffs relating to recalls, 42 percent of pandemic‐​induced layoffs will likely result in permanent job loss.
  • That, historically, job creation responses tend to lag the destruction by a year or more.

Two conclusions stem from this analysis. First, there is likely to be a painful hangover from this crisis. Not because “relief” was inadequate, but because the world has changed and it will take time for employment relationships to adapt.

Second, policies that gum up that reallocation of workers could be extremely costly in recovery. Barrero, Bloom, and Davis mention the current generous unemployment insurance benefits, employee retention subsidies, occupational licensing laws, and regulations that inhibit business formation. I would add to that minimum wage laws and some other aspects of labor market regulation. All stand in the way of the economy adjusting quickly.

As sectors in the economy begin reopening, we need as much regulatory flexibility as possible to let the market sector reallocate workers.