Michael Arnold, an associate professor of economics, can discuss three main economic risks that coronavirus poses:
- Global supply chain. Many U.S. industries and companies (e.g., the auto industry and Apple) are already raising concerns regarding availability of inputs produced in Japan. This is also a risk for the many businesses with just-in-time inventory systems that rely on regular deliveries from China. Estimates indicate we may see a drop in imports from China at U.S. ports by more than 10% in February. Estimates of coronavirus related losses in February to the container shipping industry alone exceed $350 million.
- Exports to China. While U.S. imports from China far exceed exports to China, China is an important source of customers for US companies. With large parts of China closed due to the quarantine, fewer Chinese customers will be purchasing goods from U.S. companies. This will have a short-term negative impact on U.S. companies, particularly tech companies (e.g., China is Apple’s second largest market and is responsible for more than one quarter of Intel’s annual revenue).
- Tourism. In the U.S. this industry is likely to take a hit due to a reduction in Chinese tourists – estimates of reduced spending by more than $5 billion in 2020.
Bintong Chen, a Professor of Operations Management, agreed with Arnold’s impact on the supply chain, but said he was optimistic that the epidemic could be contained soon, lessening its economic impact. His three main takeaways:
- Impact will be short-term. Chen said that companies in major Chinese cities that are critical to the global supply chain have already resumed their operations. The impact on the U.S. tourism industry will also be short-term as long as the virus does not spread to other regions of the world.
- Smaller companies will be hit hard. The epidemic will have a permanent impact on small service-oriented companies in China such as restaurants, supermarkets and hotels. Most of them were already having trouble to survive due to severe competition from online giants like Alibaba and Meituan. The virus breakout and subsequent lockout serve as a final kick to push them to bankruptcy.
- Boost to tech firms. The lockout benefits many online industries and companies such as medium streaming, social network, we-medium, online education and online gaming. Many people, especially the younger generation, are now more used to and rely on the online environments. The extended lockout period further solidifies the online culture and leads to more innovations for Chinese online companies, which may in turn lead to more intense competition with U.S. tech companies.
Thomas Eisenberg, assistant professor of economics, said that looking at the case of China, there are obvious direct impacts to people who are hit by the virus and can’t work, and to stores and companies that are shut down or quarantined. But it’s also worth considering if people in non-quarantined areas change their behavior in response too, and how you project that. People nearby are probably less likely to travel overall and trade will decrease, or they may be afraid to go to stores even if there is no reported direct risk to them. This could also extend to other countries where the virus isn’t even widespread.
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