America looks poised to come from behind, muster its formidable might, and win hands down — just as it has done before, time and time again, in various contests throughout the twentieth century.
But this time it isn’t about a World War, a space race, or an arms race; it’s about the vaccine rollout.
America winning the vaccine race likely means a faster U.S. economic recovery; an ability to delay inflationary consequences of aggressive fiscal stimulus (because vaccine-powered growth comes first); a strengthening U.S. dollar (and profoundly weakening euro); rising yields at the long end of the curve; an extremely bearish gold outlook (due to the aforementioned strong growth and rising yields); valuation trouble for overinflated tech stocks as the “low rates forever” paradigm disappears; a powerful tailwind for reflation-style economic recovery plays; and more.
The U.S. vaccine rollout is far from perfect. Worse, the cost of delay is measured in human lives. And yet, America is getting it done, and momentum is building in a positive direction.
The United States is doing a far better job than Europe at getting shots into arms — at a pace that is accelerating — and the vaccines being administered to Americans are more effective and versatile (better able to be modified in response to new COVID-19 strains).
America’s positive performance gap, which is now readily apparent and starting to grow, could ultimately create a vaccine advantage over Asia and emerging markets too, especially as new COVID variants wreak havoc and new surges of “lockdown fatigue” challenge countries that halted commerce to stop the virus.
Why is America pulling away in the vaccine race?
To simplify greatly, the United States has better logistical capability, more effective public-private partnerships, better vaccines via better science, and greater willingness to deploy fiscal resources.
These American advantages did not spring up overnight — rather they were built up over decades.
America’s logistics edge is a function of technology and commerce-related infrastructure; the public-private partnership edge is a function of longstanding cooperation between government agencies and the private sector (in America’s case, dating all the way back to the Manhattan Project and the Space Race); and the scientific research edge, built up through staggering amounts of private sector R&D and university collaboration over decades, is especially important, because America’s groundbreaking mRNA vaccine technology is well-suited to handling new COVID strains (and could further transform medicine as we know it, long after the pandemic is over).
For those familiar with U.S. history, the concept of late-breaking American dominance should feel familiar.
We have seen this movie before — particularly in regard to World War II, the Soviet-era Space Race, and the Cold War arms race.
In each of those cases, America started out confused and distracted, almost bumbling in a state of anxiety and panic, before focusing its economic might and industrial-technological capabilities to dominate rivals and ultimately win hands down.
The movie is happening again.
A saying often incorrectly attributed to Winston Churchill is, “You can always count on the Americans to do the right thing after they have tried everything else.” You can also count on America starting off at a snail’s pace but finishing like a champion. It is sort of the country’s signature move at this point.
In World War II, Japan thought it was attacking a weak and sluggish opponent when it bombed Pearl Harbor in 1941. And yet, by the end of the war, Japan had built 17 aircraft carriers, whereas America had built 141. And whereas Japan had produced about 4.1 million tons of merchant ship output over the course of the war, America had produced more than 34 million tons.
Then, too, while most of the powers involved in fighting World War II were exhausted by the end of the war, the U.S. was barely warming up.
America’s economic might was so vast that, by the end of World War II, the U.S. alone accounted for more than 50% of global economic output — and the country was still just rolling up its sleeves, marshaling the time, capital, and scientific resources to build an atomic bomb besides.
With the Soviet-era Space Race, it was a similar type of deal.
Following America’s success with the Manhattan Project, the Soviet Union had tested its own atomic bomb in 1949, which in turn meant that Sputnik I, the world’s first artificial satellite launched in 1957, was not just a matter of technological bragging rights. It was a potential doomsday delivery device.
So, what did the United States do? After hyperventilating a bit, America focused on the Space Race with full force — and put a man on the moon in 1969.
The end to the Soviet-era Cold War — marked by the fall of the Berlin Wall in 1989 — has a similar feel to it. The Soviet Union and America got into an incredibly expensive arms race; America spent the Soviet Union under the table; and now the Soviet Union no longer exists.
Over and over, America wins the long game through a combination of technological prowess, scientific know-how, and economic might. This isn’t an accident: It is a natural consequence of the country’s built-in advantages.
America, as a superpower, is unique in controlling two oceans, the Pacific on its left and the Atlantic on its right. Meanwhile the northern border is secured by mountainous regions heading into the terrain of close ally Canada, the southern border is easily defensible heading into the terrain of Mexico, and the coastlines are hard to attack due to protective geological features.
The United States, as a country, is a fortress. Within that fortress there are enough natural resources and commerce-and-technology advantages to make America an agricultural superpower, an energy superpower, a technology superpower, and a scientific research superpower, all combined.
On top of all this, American democracy still works. It has gotten banged up and badly bruised, but it still functions, and U.S. institutions are resilient enough to heal and rebuild the trust they have lost.
The above factors matter for the vaccine race because they reinforce the reasons why the United States is not only the most powerful country in the world, but also the richest country in the history of the world.
The fact that the United States is so wealthy means the government can spend trillions of dollars in fiscal stimulus without destroying the bond market or eroding faith in the currency. (The currency crisis may come later, but the fact it can be put off, or possibly averted with future growth, is remarkable in itself.)
So, what we have, in terms of the pandemic, is a situation where American machinery is gearing up at an accelerated pace. To cite some recent data:
- The pace of U.S. vaccinations has increased to 1.7 million doses per day.
- The U.S. vaccine supply has recently increased to 13.5 million doses per week.
- More than 400,000 pharmacies nationwide are set to participate in vaccine distribution.
- A third vaccine from Johnson & Johnson — which requires only one dose, rather than two — is in the pipeline for potential authorization.
As Bloomberg columnist Noah Smith points out, 1.7 million doses per day is nowhere near fast enough relative to the pace that is needed. But that pace is accelerating, and it puts the U.S. ahead of nearly every other country in the world.
As of this writing, there are only four countries ahead of the U.S. in terms of vaccination rates per 100 people — Israel, the Seychelles, the United Arab Emirates, and the United Kingdom — and of those four, only the U.K. is comparably large in terms of population size. (At just 9 million people, Israel is smaller than the Los Angeles county metro area.)
Then, too, the U.K. has chosen to delay second doses (where the United States largely has not) and the U.K. is also relying heavily on the AstraZeneca vaccine, which is potentially far less effective than the Pfizer and Moderna vaccines.
Meanwhile it is important to remember how the United States tends to perform when faced with large-scale industrial challenges: In matters of logistics, technology, and mass-scale production, American output tends to start slow but then compound at a geometric rate, making the gap ever wider between the U.S. and its rivals.
This vaccine rollout advantage is far more important than many realize in part because, even for countries that escaped the worst of the pandemic in 2020, vaccination is the only lasting solution. Trying to avoid COVID through repeated games of lockdown whack-a-mole is not a sustainable approach.
For instance: Even in Asia and the South Pacific, where countries like Taiwan and New Zealand received praise for keeping COVID case counts near zero, the threat of new breakouts tied to new COVID variants looms large.
On Feb. 15, New Zealand’s most populated city, Auckland, had to go into strict lockdown mode for the first time since October 2020, due to the arrival of a U.K.-related COVID strain.
The late troubles experienced by New Zealand and other COVID success stories — where a country seems to have beaten COVID, only to see new flare-ups and lockdowns later — suggests the long-run benefit of preventive lockdown measures may only go so far. That in turn implies that the only true escape from COVID-related misery, once and for all, resides in a full vaccine rollout.
Imagine a scenario where it turns out that COVID is devilishly hard to stamp out — almost impossibly so — through lockdowns alone, with new mutations causing ongoing flare-ups for countries that lack access to scientifically advanced mRNA vaccines.
In a scenario like that, “lockdown fatigue” issues can gradually become severe, even in countries where citizens were patient at first. One can already detect signs of this in Germany, where a weary populace is getting increasingly sick of commerce-throttling COVID measures.
And in fact, we don’t have to imagine such a scenario, because it is already playing out in Europe.
The slow pace of Europe’s vaccine rollout — due to a lack of cooperation among member states, trouble with production facilities, a lack of logistical funding, and other issues — have combined to make Europe highly vulnerable not just to lockdown-fatigue backlash, but also to new strains of COVID that are not handled effectively by second-tier vaccine candidates.
Vaccine rollout delays grew so bad in Europe that on Feb. 10 Ursula von der Leyen, the president of the European Commission, had to issue an apology.
“We were late to authorize. We were too optimistic when it came to massive production,” she said in remarks to the European Parliament, “and perhaps too confident that what we ordered would actually be delivered on time.”
In an interview with Süddeutsche Zeitung, a German newspaper, von der Leyen further added that “a country on its own can be a speedboat, the EU is more like a tanker.”
Europe is extremely vulnerable to continued rollout delays on at least three fronts.
First, the need to respond to new COVID variants could be a serious problem if logistical flexibility is lacking and available vaccine quality is second tier; second, lockdown fatigue and civil unrest become bigger issues by the day the longer the rollout takes; and third, Europe could be running low on fiscal stimulus and lacks an appetite to do more (which could mean slipping into a new recession). Then, too, various emerging markets — and even perceived winners like China — will have a rocky road ahead if new COVID variants spoil their economic recovery trajectories.
Once again, the only real inoculation against this (no pun intended) seems to be widespread inoculation — possibly coupled with a healthy portion of the population that has already been infected — and the country that wins on those fronts, hands down, is — you guessed it — the United States.
If America stays true to form, the performance gap between the United States and the rest of the world will widen. Production and logistics and technology and scientific research advantages — combined with ample funding, concentrated focus, and American economic might — will get the U.S. to a state of collective immunity, and full-fledged economic recovery, faster than global rivals.
That in turn means the U.S. economy should be able to recover faster and resume vaccine-powered growth in part powered by fiscal stimulus (helicopter money) in the pockets of service-sector workers, along with a burst of pent-up demand from consumers celebrating the end of the pandemic, even as the rest of the world (ROW) faces new headaches and late stumbles born of new and highly transmissible COVID variants.
And again, to reiterate our early point, if this outlook is correct, it could have strange and profound effects on the market. If America continues to win the vaccine race — and particularly if this happens as ROW stumbles on new variants — look for a stronger dollar, higher interest rates, a cratering gold price, potential weakness in technology names (which have overinflated valuations keying off slow growth and low interest rates), a renewed appetite for reflation investments, and more.
This paradigm shift, if it happens, will catch many by investors by surprise.