The Impact of the Coronavirus on Global Trade

We are seeing the impact on exports from China as carriers begin to cancel sailings and potentially light loading in Chinese ports due to lack of stevedores and certain key products. US, Korean, Japanese and European motor manufacturers are reporting the beginning of parts shortages since they have run down inventories. Fortunately – unless you are in the automobile industry – the shortages come as demand for new vehicles has also dropped.

The fear of the unknown is infecting human behavior. As it spreads, the virus will also impact the manufacturing industry, putting further downward pressure on global trade. It may be that fear will be the root cause of a global decline in trade growth.

In theory, Chinese factories were due to open on 10 February 2020. In practice the Government has told workers if they can work from home to do so and those in the manufacturing sector appear to be voting with their feet and staying at home. It is unlikely that industrial production ramps up before the beginning of March and that is probably an optimistic view.

Hardest hit is the motor industry and some hi-tech companies such as Apple. The biggest problem is the damage being done to the logistics supply chain. With Hubei province on lockdown and quarantined, supplies for production ae not coming in nor are the factories functioning. It goes beyond this as other manufacturing areas are on self-imposed lockdown and workers unwilling to come out into public environments. The loss of exports and the difficulty in importing commodities and raw materials needed by industry is damaging the Chinese economy as well as those in Southeast Asia that are so dependent on trade with China.

GDP (gross domestic production) projections are spiraling down. Hong Kong, Singapore and Korea, and economists are concerned that the disruption in the supply chain will impact most of Europe as well. The slight up-tick that we have seen in the Purchasing Manager’s Index globally is under threat. Given the depressed state of the main European economies, it would not take much to generate a short, sharp recession resulting from the decline in trade.