Supply Chain Council of European Union | Scceu.org
Procurement

Coronavirus’s Effects on Global Markets Will Be Delayed

That very trade war led some companies to move their supply chains to other Asian countries, but China remains the beating heart of manufacturing and assembly for the world’s goods. “Suddenly, all supply chains seem vulnerable because so many Chinese supply chains within supply chains within supply chains rely on each other for parts and raw materials,” Rosemary Coates, a supply-chain consultant, wrote in the trade journal Logistics Management. “That tiny valve that is inside a motor that you are sourcing for your U.S.-made product is made in China. So are the rare earth elements you require to manufacture magnets and electronics.” The impacts may also vary widely from province to province and even factory to factory based on how local governments regulate their regions, CNBC’s Beijing bureau chief, Eunice Yoon, noted.

The slow industrial march out of China has also left some industries, like toy making, with depleted inventories. Companies that spent last year building new production networks in other Asian countries are more resilient in the long term, but at this particular moment, they may not have enough product to sell.

Less predictable secondary effects have cropped up too. As Indonesia’s president called for stimulus spending to guard against an economic slowdown, the price of Indonesian garlic went up 70 percent, apparently because Chinese consumers were buying up the folk cure in bulk. Even small ripples must have some effect: In Australia, where students from China could not return to class after the summer holiday, universities pushed back their start dates, which hurt the businesses around them. The question is whether all those small problems and complications will add up to anything more serious than annoyance.

Then, consider the political ramifications of the economic slowdown. What if the coronavirus crisis slows China’s economic growth enough to destabilize the Communist Party’s control? Bill Bishop, a longtime China analyst, wrote that the outbreak is the closest thing “to an existential crisis for Xi [Jinping] and the Party that I think we have seen since 1989.”

The coronavirus is a remarkable probe for the complex relationships that hold up today’s economy. In our world, information flows much more quickly than goods. That means we can glimpse a major world event, in tweets and videos from the quarantine zone, weeks before its impact will be quantified. It is an uneasy and strange position, like knowing an earthquake has struck but not knowing whether a tsunami is on the way. One upshot for Americans is likely, though: Even if the worst of the outbreak is over—and it might not be—bad economic news may well be in our future.

Or if tens of millions of Chinese workers can be sidelined, and the American economy can plow through it all without a hitch, then it might be time to revise how deep the “Chimerica” connection really is.

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