The Wall Street Journal - 11.03.2020

A6| Wednesday, March 11, 2020 ** THE WALL STREET JOURNAL.

THE CORONAVIRUS EPIDEMIC

WASHINGTON—President

Trump’s push to suspend the

payroll tax to boost the econ-

omy during the coronavirus

outbreak fell flat on Capitol

Hill, as lawmakers of both par-

ties said they preferred tar-

geted measures to assist

hourly workers and the bat-

tered travel industry.

Treasury Secretary Steven

Mnuchin, who is leading the

administration’s economic re-

sponse to the outbreak, met

Tuesday with House Speaker

Nancy Pelosi (D., Calif.) to try

to start negotiations on a pack-

age. Both chambers of Congress

are set to leave Washington

soon for a scheduled weeklong

break, giving lawmakers little

time to quickly pass stimulus

legislation.

“I wouldn’t say it’s a negoti-

ation. We’re having discussions

about various different poli-

cies,” Mr. Mnuchin said after

meeting with Mrs. Pelosi for

about 30 minutes. “There’s a lot

of interest on a bipartisan basis

to get something done quickly.”

Mrs. Pelosi said she and Mr.

Mnuchin sought to find “where

our common ground was, as to

how we go forward.”

She declined to say whether

the two had made any progress

on a deal.

The House is aiming to vote

on something before it leaves

Washington on Thursday, likely

a measure aimed at helping

workers, a congressional aide

said.

Monday’s steepest one-day

decline in the stock market

since the financial crisis and a

sharp slowdown in the travel

industry have spurred efforts in

Washington to put together an

economic response. Congress

passed and Mr. Trump signed

an $8.3 billion spending bill last

week funding efforts to develop

a vaccine for the disease and

assist response efforts across

the country.

President Trump, Mr.

Mnuchin and Larry Kudlow, the

director of the White House Na-

tional Economic Council, joined

Senate Republicans for their

weekly policy lunch Tuesday af-

ternoon to gauge whether there

is enough support for a payroll-

tax cut and other proposals put

forward by the president to

shore up the economy.

Following the meeting, Mr.

Trump told reporters he had

discussed stimulus measures

with Republicans, but offered

few details.

Payroll Proposal Gets

Cool Reception on Hill

By Andrew Restuccia ,

Andrew Duehren

and Richard Rubin

WASHINGTON—The Trump

administration is likely to ex-

tend the April 15 tax deadline

as part of an effort to mitigate

the effects of the novel corona-

virus on U.S. households and

businesses, according to an ad-

ministration official and an-

other person familiar with the

matter.

Neither the decision to ex-

tend the deadline nor the me-

chanics of how such an exten-

sion might work are yet final.

Normally, individuals must

pay their prior year’s taxes by

April 15 or face penalties and

interest charges. People can al-

ready get extensions through

mid-October to file their re-

turns as long as they have paid

on time by mid-April. This deci-

sion would go further than

that.

Extending the tax filing

deadline would effectively act

as a bridge loan for individuals

and businesses facing disrup-

tions from the virus. Treasury

officials are still considering

how far the filing deadline may

be pushed back and who would

be eligible for the extension,

according to the person famil-

iar with the discussions.

Officials believe they have

the legal authority to waive

penalties on late tax payments

if they move back the filing

By Kate Davidson ,

Richard Rubin and

Andrew Restuccia

Analysts have been worried

about the potential for the

coronavirus to cause more

economic disruption on the

continent. Italy placed its en-

tire national territory under

quarantine, the most dramatic

step by any country to contain

the epidemic.

“The whole of Italy has

been locked down,” said Ben-

jamin Schroeder, a rates strat-

egist at ING. “If that becomes

the norm in Europe, that too

could probably trigger a new

test of these levels.”

In the Asia-Pacific region,

the Shanghai Composite Index

gained 1.8% and Hong Kong’s

Hang Seng added 1.4%.

In China, President Xi Jin-

ping arrived in Wuhan for a

surprise visit. This was his

first trip to the epicenter of

the coronavirus epidemic

since the health crisis began

and comes as China reports a

steep decline in the number of

new cases.

—Alexander Osipovich

contributed to this article.

Within the stock market,

sectors that had been hit the

hardest in recent days were

among the biggest gainers

Tuesday.

Airline stocks soared after

companies announced they

would cut more flights in do-

mestic and international mar-

kets, freeze hiring and park

planes as a result of reduced

demand. United Airlines Hold-

ings shares jumped $5.78, or

12%, to $52.56, while Ameri-

can Airlines Group added

$2.25, or 15%, to $17.

Shares of energy companies

rose so quickly after the open-

ing bell that exchanges briefly

halted trading in a few stocks.

Single-stock circuit breakers

are activated when shares

move up or down more than

certain thresholds within a

five-minute period.

After resuming trading,

Apache shares added $1.24, or

13%, to $10.79, while Occiden-

tal Petroleum, which cut its

quarterly dividend and said it

would reduce its capital

The outlook hinges hugely

on China, where the epidemic

began. The world’s second-

largest economy looks likely to

avoid a recession yet spread

enough pain to cause wide-

spread damage. Some business

leaders are warning it could be

late 2020 before operations

normalize.

Many businesses and econo-

mists initially expected the ep-

idemic would track the same

temporary dip and rebound

seen in 2003 during the out-

break of severe acute respira-

tory syndrome. Now—with all

of Italy under quarantine and

the numbers of infection cases

rising in the U.S. and other

major economies—that is look-

ing optimistic.

Suspension of travel is hit-

ting airlines worse than the

2001 terrorist attacks, with

ripple effects not only for ho-

tels, restaurants and theaters

but also the oil sector. Ameri-

can Airlines Group Inc. and

Delta Air Lines Inc. both said

Tuesday they planned to cut

flights and ground planes after

a drop in booking.

Europe relies heavily on ex-

ports of goods and services,

which are worth almost 50% of

its GDP, compared with just

12% for the U.S. A deep Euro-

pean recession could be trig-

gered by prolonged weakness

in its two main trading part-

ners, China and the U.S., ac-

cording to Sylvain Broyer,

chief European economist at

S&P Global Ratings.

Continental AG, a large

German auto supplier, said

Thursday it would step up

cost-cutting measures because

of the coronavirus, which

could mean more layoffs and

plant closures. The company

operates around 50 factories

and research facilities in

China, and its supply chains

have been hit hard by the dis-

ruptions.

The U.S. economy has been

a bright spot in the global pic-

ture. Growth was on a solid

footing, albeit slowing, before

the coronavirus hit.

If the U.S. economy is

thrown off course this year,

“it’s not necessarily because of

vulnerabilities that were there

and waiting to be exploited,

it’s an all new situation,” said

Stephen Stanley, chief econo-

mist at Amherst Pierpont Se-

curities. “It’s going to be con-

sumer-driven, people staying

at home, not traveling and not

spending.”

Vice President Madhavi Bokil

said, “a sustained pullback in

consumption, coupled with ex-

tended closures of businesses,

would hurt earnings, drive lay-

offs and weigh on sentiment.”

Economists aren’t forecast-

ing a drawn-out global reces-

sion. They expect growth to re-

bound later this year after the

epidemic is brought under con-

trol, but that could change if

the virus continues to spread.

Moody’s cut its expectations

for 2020 growth, with zero

growth projected for Japan.

Dateforecastwasmade

4.

2.

1.

0.

0.

China,5.2%

U.S.,1.

Eurozone,1.

Japan,0.

AllG-20,2.

Source: Moody’s Investors Service

Feb. 16 March 6

fected by the coronavirus.
But many warn those that
measures may not be enough
to ease investors’ anxieties,
especially with health offi-
cials suggesting that the num-
ber of coronavirus cases is
likely to continue rising
around the world.
“The markets at the mo-
ment are very volatile, very
broken,” said Sergey Der-
gachev, a portfolio manager
at Union Investment. “The
market participants are very
nervous, so every headline or
signal provided by central
banks and politicians and
Trump provides some small
relief.”

ContinuedfromPageOne

Stocks

Undo Some

Of Big Loss

spending in 2020, rose $1.83,

or 15%, to $14.34.

Elsewhere, the Stoxx Eu-

rope 600 ended down 1.1%,

erasing the entirety of its rally

from earlier in the session.

DowJonesIndustrialAverage

Source: FactSet

27000

23000

24000

25000

26000

March 619 0

Bear market level

Correction threshold

Businesses are bracing for a
longer and steeper coronavi-
rus-triggered downturn than
the single-quarter event ini-
tially anticipated.

The regions hit by the coro-
navirus are experiencing a dou-
ble whammy. Business opera-
tions across Asia, Europe and
the U.S. are being disrupted by
factory closures, quarantined
workers and shortages of com-
ponents, crimping the availabil-
ity of goods and services—a so-
called supply shock.
Meanwhile, postponed public
events and mounting fear are
causing consumers and busi-
nesses to hold back, avoiding
travel, restaurants and lavish
purchases, even where restric-
tions haven’t been imposed—a
demand shock.
The combined effects risk
pushing the global economy
into a self-reinforcing, down-
ward spiral, a possibility fueling
market turmoil and prompting
many executives around the
world to prepare for darker sce-
narios than before.
Ohio-based retailer Aber-
crombie & Fitch Co. is prepar-
ing for the coronavirus to af-
fect business for six months,
according to its chief financial
officer, Scott D. Lipesky. “We
operate in 20 countries around
the world, and each of them is
seeing some level of impact,”
he recently told investors.
Likewise, Kevin M. Fogarty,
president of Houston polymer
maker Kraton Corp., told in-
vestors he sees growing con-
cern from the spread of the vi-
rus, “with potential for the
disruption and the duration to
linger well into the second
quarter or beyond.”
Moody’s on Monday cut its
expectations of 2020 growth
in the U.S. to 1.5% from 1.7%, in
China to 4.8% from 5.2%, and
in the Group of 20 economies
to 2.1% from 2.4%. Moody’s

Double Whammy Hits Businesses

Employees at a factory in Shenzhen, China, recently checked their colleagues’ temperature.

ALEX PLAVEVSKI/EPA/SHUTTERSTOCK

By James T. Areddy ,

Tom Fairless

and Harriet Torry

President
Trump said
Tuesday he is
considering
new tax and
spending
plans to tackle the economic
threat posed by the novel
coronavirus. It is a step in the
right direction but no guaran-
tee of success. Mr. Trump
must overcome his adminis-
tration’s misconceptions of
the crisis and frictions with
other political leaders whose
cooperation is essential.
The White House has
struggled to strike a balance
between mitigating the epi-
demic and protecting the
economy. It swiftly cut off
travel to affected countries,
which seemed overly aggres-
sive at the time but no longer
does. It has since bent over
backward to play down the
risk and prevalence of the
disease in the U.S., at times
with misleading information.
Mr. Trump’s focus on the
stock market has led him to
insist that the main eco-
nomic remedy was for the
Fed to cut interest rates.
“Our pathetic, slow moving
Federal Reserve, headed by
Jay Powell, who raised rates

too fast and lowered too

late, should get our Fed Rate

down to the levels of our

competitor nations,” he

tweeted Tuesday.

But the Fed doesn’t have

enough ammunition or the

right ammunition to counter

the virus’s impacts. Fiscal

policy is much more effec-

tive, but until this week the

administration hadn’t con-

sidered significant fiscal

stimulus.

T

o minimize economic

disruption the admin-

istration has been re-

luctant to endorse “social

distancing,” such as cancel-

ing large gatherings, as

France has done, or closing

schools, as Japan has done.

“Nothing is shut down, life &

the economy go on,” Mr.

Trump tweeted Monday.

Nonetheless, health ex-

perts say such measures are

likely necessary to “flatten

the curve,” that is spread the

case load over a longer pe-

riod of time so that the daily

inflow of new cases peaks at

a level that doesn’t over-

whelm hospitals.

“No state and no city

wants to be the first to basi-

cally shut down their econ-

omy,” Scott Gottlieb, who

was Mr. Trump’s first Food

and Drug Administration

commissioner and is now

with the American Enterprise

Institute, said on CBS on Sun-

day. “But that’s what’s going

to need to happen. States and

cities are going to have to act

in the...national interest right

now to prevent a broader ep-

idemic. Close businesses,

close large gatherings, close

theaters, cancel events.”

Jay Shambaugh, director

of the liberal Hamilton Proj-

ect think tank, said the fed-

eral government should im-

mediately increase its share

of Medicaid spending by 10

percentage points, relieving

states that face rising costs

and falling revenue from the

virus.

Mr. Shambaugh also sug-

gested the federal govern-

ment permit jobless workers

in health emergency zones to

collect unemployment insur-

ance without proving they

looked for work, and topping

up food stamps for families

whose children are no longer

receiving free meals at

school because of closures.

While these are likely to

be popular with Democrats

who control the House, it re-

mains to be seen if Mr.

Trump will embrace them.

That points to another poten-

tial obstacle to the crisis re-

sponse: tense relations with

political leaders whose coop-

eration is now necessary.

Relations are at a nadir

with the House, which im-

peached him for trying to

pressure Ukraine into inves-

tigating rival Joe Biden. Re-

lations with Democratic gov-

ernors of hard-hit states,

including California, Wash-

ington and New York, aren’t

much better. After Vice Pres-

ident Mike Pence met with

Washington Gov. Jay Inslee

on that state’s epidemic, Mr.

Trump said: “I told Mike not

to be complimentary to the

governor because that gover-

nor is a snake.”

G

lobally, the economic

fallout of the virus has

been amplified by in-

ternational friction over the

trade war, rising populism

and sanctions. Last week

Russian President Vladimir

Putin rebuffed a plea by

OPEC to jointly cut oil pro-

duction to prop up prices,

reportedly because he hopes

to undercut American shale

producers.

Saudi Arabia responded

by slashing its selling prices

and promising to boost pro-

duction. Oil cratered, stock

markets followed suit and

alarming new stresses ap-

peared in corporate borrow-

ing markets.

President Trump, who

came of age when the U.S.

was a net importer of petro-

leum fuels, on Monday cele-

brated the prospect of

cheaper gasoline. But the

shale boom means the U.S. is

no longer a net importer and

the Russia-Saudi price war

likely increases the risk of re-

cession by discouraging drill-

ing, investment and hiring in

the oil patch and its suppliers.

Belatedly, Mr. Trump may

appreciate the full impact of

what Saudi Arabia has done.

On Monday he called Crown

Prince Mohammad bin Sal-

man to discuss “global en-

ergy markets,” according to

the White House.

CAPITAL ACCOUNT|By Greg Ip

Old Battles Impair White House Response

Interventions such as shutting down public gatherings

can spread out an epidemic, preventing hospitals from

being overloaded.

Source: Centers for Disease Control and Prevention

Number of daily cases

Days since first case

0

Capacity of U.S.

health-care system

Withoutintervention

With

intervention

date and are exploring whether

they have the ability to waive

the interest under an emer-

gency disaster declaration.

Extending the deadline

would also have temporary im-

plications for the federal bud-

get and borrowing. The Trea-

sury depends on estimates of

federal revenues to ensure it

has enough cash to keep paying

the government’s bills on time.

Delaying tax payments could

force the Treasury to borrow

more in the near term. April is

the largest month for federal

tax payments. Last year, the

Treasury collected $333 billion

in individual income taxes that

month.

Earlier Tuesday, House Dem-

ocrats asked the Internal Reve-

nue Service whether the gov-

ernment should consider

pushing back the April 15 dead-

line, mentioning the govern-

ment’s existing authority to ex-

tend deadlines and waive

penalties. The IRS often ex-

tends filing deadlines in af-

fected areas after natural disas-

ters, and the tax code

specifically authorizes the

Treasury to grant delays fol-

lowing presidentially declared

disasters.

Besides the main April 15

deadline for individuals, there

are also other tax deadlines for

estimated payments and other

types of taxpayers.

The IRS and White House

didn’t respond to requests for

comment.

President Expected

To Extend Tax Date