It will be a long time before we understand what the outbreak did to the global economy.
So far, less than 0.0008 percent of the humans on Earth have been diagnosed with the coronavirus known as COVID-19. But thanks to the circulation of disease and capital, the whole world has been affected.
Chinese manufacturing cities such as Wuhan, the epicenter of the outbreak, are intimately entangled with the supply chains of the entire world. That means that both the disease and the containment measures enacted to control it (take, for example, the quarantine still in place for 70 million people) will have a dramatic effect on businesses across disparate industries.
Any company—including Apple and Walmart—that brings things in from China has to worry about production and distribution slowdowns. That’s partly because supply chains are less linear than they sound. Production networks often have complex interrelationships that go back and forth across borders. An American retailer might contract with only one Chinese company, but that entity in turn might act like a general contractor, pulling in components from many sources or farming out work to a changing list of factories. In 2018, for instance, more than 1,000 facilities were involved in some way with the making of Apple products.
Meanwhile, exporters—such as Brazilian ranchers and Chilean winemakers—are facing a massive drop in Chinese demand. Inside China, the economic decline is expanding beyond the manufacturing sectors; even a media company said it was laying off 500 workers because of the epidemic.
What makes this all so strange is that a mosaic of facts is known about the economic consequences of coronavirus, but the arrival of those consequences outside China will be delayed, and their magnitude is uncertain. It doesn’t help that experts inside and outside China have questioned the reliability of the country’s official statistics for years. And local reporting provides reasons to doubt coronavirus numbers as well.
What Target executives are worried about today will actually show up for shoppers in April. You might think that financial markets, at least, would be “pricing in” the problems, but share prices are at record highs. Coronavirus has likely already dealt many of its economic blows—and now those disruptions will trickle through the networks that connect China to the rest of the global economy.
Some of the effects will be material: There might be fewer items on store shelves, some prices might rise, product development could slow down. But some of the impact, and an additional source of lag, will come from the data describing the reality of the past two months, much of which has yet to be tabulated. Companies and governments need statistics to understand what’s happening in the world. The U.S. government, for example, maintains a complex data-gathering operation: the Bureau of Economic Analysis, the Bureau of Labor Statistics, certain survey programs of the Census, the National Agricultural Statistics Service, the Economic Research Service, and many others. The data that these organizations publish take time to reflect on-the-ground commerce. Under normal conditions, this may not be significant. But when the economy suffers a globe-altering shock, statistical windows on the world can be dangerously out of step with reality.
For now, the data points that can be marshaled to make sense of the macroeconomic picture are not good. Chinese oil demand was down 20 percent earlier this month, “probably the largest demand shock the oil market has suffered since the global financial crisis of 2008 to 2009, and the most sudden since the Sept. 11 attacks,” as Bloomberg put it. With some huge Chinese cities under varying versions of lockdown, the total number of cars and trucks on the road has fallen. Factories are not running at full capacity either. Pollution near Shanghai, a reliable and hard-to-fake indicator of economic activity, has plummeted, according to Morgan Stanley. Container ships are sailing with smaller than normal cargo loads. Prices for bulk carriers that move iron ore and coal have collapsed. One analyst told the Financial Times that the coronavirus “will have a bigger impact on the global tech supply chain than SARS and creates more uncertainty than the U.S.-China trade war.”
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.