In today’s world, connectivity permeates every aspect of our social and business interactions. The recent coronavirus endemic greatly threatens our economy-- the web of connectivity that unites us and allows our 21st century way of life to continue.
Recent events have only highlighted the fragility of modern-day systems: the US Food and Drug Association recently announced that a drug for human use is currently unavailable because of supply chain disruptions; the stock market saw its lowest day since the 2008 financial crisis this week, and the world’s leading companies have encouraged employees to work from home
In his Wired article, Matt Stoller talks about one likely result: a crisis of production. “After 25 years of offshoring and consolidation, we now rely on overseas production for just about everything.” With China, South Korea, and Italy slowing down their production, it’s anyone’s guess how long it will be before regular import cycles resume. According to an emergency preparedness expert, “We design systems presuming a steady state of normalcy, but now, we’re about to hit this big ball of stress imminently. It will flex the system in weird ways that will cause parts to snap. And it’s impossible to predict what will snap.”
How exactly has the coronavirus outbreak disrupted an astonishing array of major industries, including cars, tech, food, and fashion? Some of the biggest companies in the world, such as Disney, Nike, McDonald’s, Hyundai, and Starbucks rely on not only China’s manufacturing prowess, but also on the purchasing power of its increasingly active consumer class. One example is Disney’s theme parks in Shanghai and Hong Kong – with these shut, Disney CFO Christine McCarthy claims a $175 million reduction in operating income is likely. Another is McDonald’s shutting down over 3000 restaurants in the country. According to the World Tourism Organization, when they go abroad, Chinese tourists spend $258 billion a year, which is double what Americans typically spend. With travel bans being issued by governments and companies actively encouraging employees to work from home, coronavirus is and will impact Chinese tourism spending overseas. “China today accounts for about one-third of global economic growth, a larger share of global growth than from the U.S., Europe, and Japan combined,” says economist, Andy Rothman. Alongside spending outside the country, Chinese citizens are also used to a steady the inflow of imports. China is the largest importer of soybeans, iron ore, and certain electronics. With these brands as well as others now forced to send employees home, close stores for an unknown period of time, and restrict travel for global employees, the impact on global supply chains is difficult to ignore.
Businesses have already faced economic consequences. Fitness brand Under Armour expects a revenue hit of up to $60 million in the first half of the year, and according to The New York Times, Apple, Starbucks, and Ikea have initiated a store closure move that has no end date in sight. Several air carriers are no longer flying to China, fearing for passenger safety. These include American Airlines, British Airways, and Lufthansa, to name a few. FedEx and UPS have made arrangements to allow their pilots the ability to decline travel to China. Over forty casinos in China have been shut down, Nintendo shipments delayed, and Apple CEO Tim Cook has confirmed that some Apple suppliers will remain closed. Tesla, Ford, and Nissan factories have been shut down as well. “We are evaluating on an ongoing basis in real time,” said Jon Mills, a spokesman for Cummins, “and I imagine other places are in the same position as we are.”
Even major sporting events and corporations have faced losses. The Summer Olympic Games, the world’s largest sporting event scheduled to take place in Tokyo throughout July and August, is under threat, as it involves tens of thousands of fans, athletes, organizers, and media personnel traveling from all across the world. Dick Pound, a member of the International Olympic Committee, indicated that a decision on whether or not to proceed with the games would likely be made by May, depending on whatever was deemed suitable at that time. Following suit, the Italian Cup was also postponed. In Switzerland, the soccer league has been suspended until the end of March. The world indoor track and field championships have been postponed by a year, along with the Formula One Chinese Grand Prix and a women’s tennis tour scheduled for April.
This is not the first time an outbreak has affected the Chinese and the global economy. Seventeen years ago, SARS, which comes from the same family of viruses, slowed China’s growth by two percent in one quarter. The current strain of coronavirus has already affected more people than SARS did (the SARS death toll was below the thousand mark), and the economic impact on the global economy is still being understood. So far, both outbreaks have had the largest and most immediate impact on the retail industry and consumer spending. It is yet to be seen how global markets will react to the remainder of the virus outbreak.
As China’s economic growth stalls, global economic growth faces a direct impact, with analysts predicting that it will reach its slowest growth rate since the global financial crisis of 2008-2009. This dependence on China, which was used as a justification for the trade war that both countries have been embroiled in for over half of Mr. Trump’s presidency, is something big business has already begun reconsidering. As labor costs in China have risen in the past decade, and competition from the local market has increased, global organizations were already looking for alternatives. Now, with the added uncertainty of the coronavirus, this concern has only grown. Temporary stopgaps have been put in place, but even after the coronavirus is contained or eliminated, China is likely to face an economic decline as companies look to cut their losses and diversify their dependence. How the Chinese government will attempt to control the inevitable losses their economy will face, after years of record growth, remains to be seen.
