The Impact of a Potential Epidemic on the Economy and Supply Chain
The coronavirus is dominating news channels worldwide as potential cases are reported in the United States. Health officials are warning against travel to certain areas to minimize exposure and several travel bans are already in place. Not only do epidemics pose serious danger to people around the world who may be exposed, epidemics like the coronavirus also disrupt economies and supply chains.
Background on the Coronavirus
The flu-like virus was first identified in Wuhan, China on December 31st and has caused at least 26 fatalities. The U.S. is monitoring an estimated 63 cases that stretch across 22 states. The first patient resides in Washington and the most recently identified patient is located in Illinois. Despite World Health Organization’s refusal to formally designate the outbreak as a global health emergency to avoid scaring global trade, citizens everywhere can’t help but feel worried.
Coronaviruses belong to a larger family of illnesses that typically infect animals but can evolve and spread to humans. Common symptoms include fever, coughing and shortness of breath. These symptoms often lead to pneumonia.
U.S. officials have screened over 2,000 passengers across 200 flights coming to the U.S. from China at major international airports and have not found any new cases. More recent reports have observed that symptoms may take up to two weeks to appear. China has roughly 33 million people that are under travel restrictions as a preventative measure.
It’s a relief to hear that, though the coronavirus appears to be more contagious than past outbreaks, it is not as dangerous as many infamous viruses. Many are comparing it to severe acute respiratory syndrome (SARS) which transitioned from animals to humans and had a more severe toll, claiming the lives of over 700 people in 2003.
Economic and Supply Chain Ramifications
The coronavirus’ effect on China’s economy relies heavily on whether or not death tolls rise and whether its international presence expands. In the early 2000s, consumer spending drove somewhere between 40% and 50% of Chinese growth. The arrival of the SARS virus dropped this figure to 35% in 2003 – the second-lowest reading since the 1970s. Many fear that the coronavirus has the potential to do the same.
China relies heavily on travel, tourism and international trade, but all of these economic sectors are in danger as cases of coronavirus continue to be confirmed. Its trading partners (especially the U.S.) face similar threats should the outbreaks intensify.
The Dow Jones industrial average is an indicator of international concerns over the disease. On Jan 23, 2020, the Dow “fell nearly 200 points before recovering to close at 29,160.09, down 26 points for the day, following China’s decision to expand its quarantine beyond Wuhan, where the virus first appeared. Oil prices also dipped again as traders anticipated global slowing.”
A staggering 11 million people within several Chinese cities are on full lockdown. Those cities and several provinces will halt manufacturing operations, not engage in tourism, e-commerce or any other form of normal economic activity. To put this lockdown into perspective, New York city has just over 8.6 million people in residence.
We won’t know the full economic and logistical impact of this coronavirus for several weeks, but one can only imagine the ramifications the United States would see if a city larger than New York was put on lockdown and international travel was restricted. U.S. retailers dependent on production in China “are still trying to assess the effect of the coronavirus on their supply chains.” Precautions are in place internationally, but only time will tell just how far the coronavirus spreads.