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China’s coronavirus might have lasting impacts on global industrial supply chains

By:
on Jan 31, 2020
Updated: Mar 11, 2020
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  • China's coronavirus is likely to cause major disruptions in global industrial supply chains.
  • Evidence from previous disruptions indicates that the impact could be long, big, and persistent.
  • Similar problems were encountered after earthquakes in Japan (2011 & 2016), floods in Thailand (2011), and the SARS virus outbreak in 2003.

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Coronavirus continues to spread throughout China, with every new report verifying that the number of confirmed cases continues to increase. However, as the virus spreads, more and more of China’s factories are shutting down, which might have a major effect on the global industrial supply chains for years to come.

At the moment, China is making up more than two times the share of the global exports of merchandise than it did when the SARS virus started to spread, in 2003. According to some statistics, its province of Guangdong was able to export more in 2018 than the entire country did in 2003.

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In other words, while the recovery did come, it took China quite a long time before it recovered enough to reach former levels of export, and exceed them. Manufacturers were already concerned with the effects of the Lunar New Year holiday. Due to the virus spreading, the country’s authorities ordered that the holiday needs to be extended further,

Over the past decade, it was noticed that the country’s industrial production in January and February is over 20% below when compared to any other month of the year. The amount of time off that workers tend to take varies, but even if it takes as long as two weeks, on average, this means that the entire country’s industrial output would be lowered to one-fifth of its full potential.

The fact that China joined the World Trade Organization after 2003 also has a great impact on the global supply chains. Therefore, it is no stretch to say that the entire world is likely to be impacted, as was already proven with evidence from supply shocks in the past.

Previous incidents indicate heavy consequences

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Earthquakes in japan from 2011 and 2016 have disturbed US and European plants using General Motors parts, as they could not be found elsewhere. Thailand floods from 2011 had a similar impact, and there is little doubt that this incident will have similar consequences, due to China’s major role in supplying various products at a massive scale.

The size of the impact has not been determined yet, as international economists’ analyses mostly focus on the demand, instead of the disruptions in supply chains. However, considering the size of China’s role in the last few years, it is safe to say that the impact is likely to be felt for years after the crisis is averted.

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