COVID-19: The Economic Fallout

Anne Marie Waters 

April 21st 2020

 

An extraordinary thing has occurred on the world markets; the price of oil has fallen below zero for the first time in history.  In what can only be described as a surreal situation, traders were actually paying people to take their oil.

The causes of this are largely a drop in demand for oil, as well as a lesser availability of storage space – both prompted by the increasingly bizarre COVID-19 world we now find ourselves in.

What has been described as a “quirk” saw oil at -$37 a barrel (however the BBC reports this is now correcting itself).  The oil was sold on the “futures” market.  A “future” is an agreement to buy at a later date.  The parties to the contract agree to buy (and sell) the product on a specified date at a specified price.  When that date arrives, the price of the product may have fallen, so the holder is unable to sell the futures on.  This means they are stuck having to find a place to store oil in a market with less space available.  Subsequently they found themselves paying others to take it off their hands.

It is yet another example of the never-seen-before nature of the coronavirus pandemic.  The territory we are in is the very definition of unchartered.  There are likely to be more surprises in store and we can only speculate as to what our new “normal” will look like.

Meanwhile, China continues to reap the benefits of the catastrophe it caused.

Like many airlines, Virgin Australia is in financial trouble as a result of the global lockdown.  The company wanted $1.4 billion from the Australian government, but Scott Morrison refused, telling Virgin Australia to find a market-based solution instead.  Now, China is eyeing the airline for a takeover bid.  According to the Daily MailChina Southern Airlines, China East Airlines and Air China are all in discussions about purchasing the carrier in a last-minute takeover in a bid to stop its ‘catastrophic’ collapse.”

While no formal offers have yet been made, it may represent yet another financial gain (therefore increased control) by the Chinese government.  All of the airlines named are government-owned.

This scenario presents something of a conflict.  On the one hand, we don’t want the taxpayer bailing out big business over and over again.  Something has to change.

On other hand, letting the market sort it out leads to results like this – China’s dominance grows and grows.  China is the world’s manufacturing giant and as such, it holds its customers – and their governments – over a barrel.  It already has the power to blackmail the world, particularly given its dominance in the production of medicines or medical products.  The USA is overwhelmingly supplied with medicine from China, and would find itself in hot water should China cut off its supply.

It is our global financial interaction that is erasing our nation-states.  The world is an open market place and it has left nations dependent upon other nations for the provision of basic necessities.  There is nothing wrong with international trade, but if a country can’t stand on its own feet, globalism has succeeded.

There must be an answer to this, but it would involve regulation, something many free market supporters run a mile from.  But if the taxpayer is required to bail out big business, then surely the taxpayer is entitled to say as to how money is being spent.  Should business be spending recklessly in the good times only to call on the taxpayer in the bad?  Instinctively we know this isn’t fair, and it isn’t.

However, we don’t want even greater chunks of our countries’ economies owned by China or another hostile or potentially hostile world power.

It is a fundamental question of our age – how should we organise our money and trade?  It’s a question For Britain will answer with our new economic manifesto this summer, as well as regular economic reviews on these pages every Tuesday.  Please join me.

 

Anne Marie Waters 

Leader

For Britain 

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