How Coronavirus Affects the Economy
Background of Coronavirus
Originating from a wet market in Wuhan, China, the coronavirus is a respiratory illness that affects both animals and humans--as the disease was first found in bats. The coronavirus is transmitted through air—very much like the SARS epidemic that spread throughout China in the early 2000s. Although the risk to most people outside of China is very low, the coronavirus has left almost 2,000 people dead and around 70,000 people infected worldwide--with the majority of patients in China.
Pain for China
China’s stock market only took a few months to recover after the SARS epidemic, a previous disease outbreak being compared with the coronavirus. However, even before the coronavirus, the Chinese economy was showing signs of an economic slowdown with their GDP growth rate dropping to 6% by the end of 2019. Much of what constituted the growth miracle of the Chinese economy was a rapid labor force growth due to changes in population dynamics, rapid structural changes due to rural urban migration, higher investment rate into tools of modernization, and finally, an open economic policy that allowed the growth of export oriented manufacturing. However, these signs have disappeared. Since most of the factors of growth miracle production have been carried out to its maximum capability, the thought that the Chinese economy can recover from the coronavirus outbreak as fast as they did from the SARS epidemic is far more unlikely. Especially with Chinese consumption at an all time low, the Chinese economy that has been shifting towards relying on consumerism over purely manufacturing exports is suffering.
The Trade War
In a way to mitigate the impacts of the U.S. and China trade war, China has conceded 75 billion dollars of tariff reduction in regard to American-made goods. However, occupied with the coronavirus, China’s ability to buy 200 billion dollars in U.S. goods are greatly threatened. This aspect of the China-U.S. trade deal is the center of pride for Donald Trump, and without follow through, this could mean further struggle between the two countries to eventually reach a tariff-free state that both countries find ideal. On the other hand, due to the nationwide push for containment, China has put emphasis on ensuring citizens continue to have low grocery bills by supplying the people of China with adequate food supplies as quarantine continues. This means that the portion of the trade pact that states China will be committed to buy 32 dollars worth of American agricultural products over the next two years may be realized. Regardless, the coronavirus outbreak forces a weak positioned China to concede to the United State’s trade demands—a win for the United States. However, the probability of not being able to contain the coronavirus and of effectively carrying out China-U.S. trade deal could potentially lead to further political and economic complications in the near future in regards to collaboration between the two countries.
Lack of Demand Causes Issues
Happening before the Chinese Lunar New Year, where a majority of workers travel back to their hometowns, the coronavirus is pushing for nationwide containment and shutting down productivity. However, in some cities such as Beijing, workers are pushed to returnback to work from government intervention. Despite the fact that the government has nationally pushed employees to return to work in order to increase productivity, which has been stagnant during times of constant containment, a majority of China’s working class are migrants, which leads to further disease spread and an inability to return back to the factory; this is due either to fear of contracting the disease or the inability to return back to their working city.
With a lack of workers, factories are shutting down. Because factories are incapable of running, the demand for raw materials has dropped, which caused a decline in the prices of raw materials worldwide. In addition to this, the coronavirus may lead industry leaders to seriously reconsider how their supply chains are structured. This may lead to an increase in United States production lines and manufacturing--although this may be unlikely as other Asian countries with lower labor costs may be prioritized first. For example, copper prices have decreased more than 12 percent this year, and oil prices have fallen as well due to no consumption for travel needs. China, on average, purchases 200,000 barrels of United States oil, which is not a lot compared to the total number of daily American oil exports. However, the benchmark price of oil is set on the global markets. The current lack of tourism and manufacturing in China due to the coronavirus poses a threat to the global economy. Depending on China’s speed of recovery and the adaptation strategies companies choose, we may either see a world still dependent on China’s manufacturing power struggle in regards to economic growth or a world indifferent as to whether or not China exists.
Sources:
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