Coronavirus as an Economic Virus
Originating from Wuhan, China, Coronavirus (COVID-19) has now been declared a public health emergency by the United States and the World Health Organization (WHO). With cases declared in China, South Korea, the United States, Italy, and Iran, countries have been buckling down on protection measures for their citizens. Much information about COVID-19 remains unknown, especially how easily it spreads between people and how infected people develop a more serious disease.
Moving away from the medical impact of the disease, COVID-19 presents enormous risks for a globalized world economy. From developing to developed nations, the rapid spread of the virus threatens the global supply chain, damaging everything from the transport of food to the manufacturing sector to the enormous tourism industry.
Chinese history offers evidence of a similar event occurring just twenty years ago. Emerging in late 2002, the Severe Acute Respiratory Syndrome (SARS) began in the Guandong province of China and quickly spread to countries around the world, including Australia, Brazil, Canada, China, Hong Kong, South Africa, Spain, and the United States.
China certainly felt its effects. The SARS outbreak cost the country an estimated 1% decrease in Chinese GDP and a 0.5% drop in Southeast Asia as a whole, due to the decreased income level and lack of spending. The manufacturing industry reported losses, as did other industries due to the lack of personnel exchange and the general increase in spending on prevention and healthcare.
When it comes to COVID-19, many of the same effects have occurred, but on a much larger scale. The wider spread of the disease and China’s enormous economic growth during the past decade offer cause for concern. With the effects of the virus, economists predict that GDP growth could drop from 6.1% to 4.5% in the first quarter of 2020. As a growing economic powerhouse, the slowing of the Chinese economy would ultimately reduce global economic growth by 0.2%, leading to the slowest economic growth pace since the global financial crisis of 2009. As China’s power in the world grows, so does its potential to cause chaos.
For years, the Chinese Communist Party has prided itself upon being able to feed its vast population, which totals nearly 1.4 billion people today. However, as the dangers of COVID-19 rise throughout the province, food and the process of acquiring it has become a problem. People within China stay home and hoard their provisions in an attempt to minimize outside exposure. As a result of their decrease in purchases from supermarkets, these stores struggle to keep fresh food in stores due to a lack of demand. Parts of the country have closed off their roads to passing traffic, leaving shipments of food and other resources delayed. In an attempt to solve the food shortage, the Chinese government, alongside Chinese provinces, has promised to keep food flowing into Wuhan.
Along with food, the distribution of other goods poses a problem to not only China but countries around the world as well. China’s position as a creator and distributor of parts for dozens of companies puts themselves and other countries in jeopardy. Hyundai recently suspended production at a South Korean car factory due to severe supply chain issues. China quit the production of these parts due to the rapid spread of COVID-19. The longer these factories in China remain closed, the greater the loss for car manufacturers. Other companies, including Tesla, Ford, and Nissan, have faced similar challenges in keeping production afloat. China’s centrality as a distributor of these parts demonstrates the disastrous effects that it could have upon the world. A significant lack of parts could lead to a decrease in economic growth in countries that produce high amounts of cars, leading to a disaster on a global scale.
In addition to cars, other businesses linked in the global supply chain have been hit. Specifically, Chinese company Foxconn, the world’s largest manufacturer of electronics and an important step in Apple’s supply chain, has been taking its time to resume manufacturing in light of the rapid spread of the virus. Similar to the production of cars, China’s prominent place on the global electronic supply chain means that a shutdown could lead to a global shortage. Apple has already sounded the alarm about the potential for a shortage of stock due to COVID-19. Once again, China’s place in the global economy has given the world reason to worry about the spread of coronavirus.
Other industries face similar problems. In particular, airlines could face a revenue reduction of about $29 billion this year. All airlines within the Asia-Pacific region face a 13% decline in passenger demand according to the International Air Transport Association. Flights to Asia have been cut, as exemplified by Singapore Airlines temporary restriction of flights between the city-state and major cities, such as Paris, London, Tokyo, Seoul, Sydney, and New York.
Specifically, the virus has hit New York particularly hard because of the enormous tourism industry that China provides to the city. As the second-largest group of foreign travelers to New York, the decrease in travel from the Asian region has already led to a decrease in business amongst the three Chinatowns, dropping nearly 70% in the past couple of weeks.
In light of the economic issues highlighted above, the New York Times reported France’s warning of an ‘over-dependence on China,’ wherein companies overuse China for raw materials and parts. In light of the spread of COVID-19, companies within France and across the world have felt the impact that China possesses. The French government reported that its own GDP would shrink by around 0.1%, demonstrating the impact that China has on the world.
Napoleon Bonaparte once said: “China is a sleeping giant. Let her sleep, for when she wakes she will move the world.” His words ring true today. COVID-19, as well as China’s immense power in the global supply chain, threaten to move the world, perhaps towards economic catastrophe. As the disease continues to spread and its economic impacts continue, its true effects will materialize, and the world must prepare itself.