When was the last time that we witnessed a disaster that severely disrupted the supply chains of over 5 million companies around the globe simultaneously? Looking back over the past couple of decades, I can’t think of one. In recent days I have written a number of articles about the economic impact of this coronavirus outbreak, and what we have seen so far could be just the beginning. With each additional week that much of the Chinese economy remains at a virtual standstill, things are going to get even worse. Today, China accounts for approximately 20 percent of global GDP, but that doesn’t tell the entire story. At this point the rest of the world has become so dependent on Chinese exports that any sort of an extended shutdown for Chinese manufacturing would be a complete and utter nightmare for global supply chains. In fact, a brand new study that was just released by Dun & Bradstreet has concluded that the coronavirus outbreak in China “could impact more than 5 million businesses worldwide”…
The new coronavirus outbreak and subsequent shutdown of huge swathes of China could impact more than 5 million businesses worldwide, according to a new study.
A special briefing issued by global business research firm Dun & Bradstreet analyzed the Chinese provinces most impacted by the virus, and found they are intricately linked to the global business network.
Many people may assume that we could just “make these things somewhere else”, but that isn’t so easy.
New factories would have to be built, workers would have to be trained, etc.
And as Harvard Business School’s Willy Shih has pointed out, there are “some things that are only made in China these days”…
There are some things that are only made in China these days, and not just the usual electronics and toys — consumer products — it’s active pharmaceutical ingredients that go into pharmaceutical supply chains worldwide.
So what is going to happen if economic activity in China does not return to normal any time soon?
That is a very good question. Unfortunately, there will be shortages, and global supply chains will become incredibly strained.
According to the brand new study from Dun & Bradstreet that I mentioned above, 938 of the Fortune 1000 companies have at least a “tier 2” supplier in the region…
Dun & Bradstreet researchers found that at least 51,000 companies worldwide, 163 of which are in the Fortune 1000, have one or more direct or “tier 1” suppliers in the impacted region, while at least 5 million — and 938 in the Fortune 1000 — have one or more “tier 2″ suppliers.
The impact on businesses in China and around the world is already dragging down economic growth forecasts for the year.
In some cases, the breakdown of global supply chains will simply lead to higher prices for western consumers.
But in other cases there will come a point when certain products are not available at all. The following comes from Zero Hedge…
A new poll via Shanghai’s American Chamber of Commerce (AmCham) discovered that 50% of US firms operating in China say shutdowns of factories have impacted their global operations due to the Covid-19 outbreak, reported Reuters.
About 78% of these firms warn that their staffing is currently short at the moment, which would prevent the resumption of full production, leading to massive shortages of products in the next several months for Western markets.
Massive shortages of products?
That doesn’t sound good at all.
Hopefully this outbreak will start to fizzle out and such an ominous scenario will not materialize. But at this point even Apple is admitting that revenue will be well below expectations this quarter. In explaining this to the public, Apple cited a couple of reasons…
- The first is that worldwide iPhone® supply will be temporarily constrained. While our iPhone manufacturing partner sites are located outside the Hubei province — and while all of these facilities have reopened — they are ramping up more slowly than we had anticipated. The health and well-being of every person who helps make these products possible is our paramount priority, and we are working in close consultation with our suppliers and public health experts as this ramp continues. These iPhone supply shortages will temporarily affect revenues worldwide.
- The second is that demand for our products within China has been affected. All of our stores in China and many of our partner stores have been closed. Additionally, stores that are open have been operating at reduced hours and with very low customer traffic. We are gradually reopening our retail stores and will continue to do so as steadily and safely as we can. Our corporate offices and contact centers in China are open, and our online stores have remained open throughout.
Needless to say, U.S. financial markets are not responding favorably to this announcement.
But what is happening elsewhere is nothing compared to the economic nightmare that is unfolding inside of China right now.
Because of the virus, very few people even want to leave their homes. As a result, consumer spending has almost entirely disappeared.
In fact, one CEO claims that there is virtually “no domestic consumption” in China right now…
Alan Lim of E-Services Group says there is “completely no domestic consumption” now and “factories are, at best, this week at 25% production … you need approval by the government to say you [can] work.”
Of course it is entirely possible that what is taking place in China could start happening elsewhere if this virus continues to spread.
The total number of confirmed cases outside of China is rapidly approaching the 1,000 mark, and that isn’t something to be extremely alarmed about yet.
But if that number continues to rise at an exponential rate, we will soon see a tremendous amount of panic all over the globe, and that will be extremely bad news for the entire global economy.
About the Author: I am a voice crying out for change in a society that generally seems content to stay asleep. My name is Michael Snyder and I am the publisher of The Economic Collapse Blog, End Of The American Dream and The Most Important News, and the articles that I publish on those sites are republished on dozens of other prominent websites all over the globe. I have written four books that are available on Amazon.com including The Beginning Of The End, Get Prepared Now, and Living A Life That Really Matters. (#CommissionsEarned) By purchasing those books you help to support my work. I always freely and happily allow others to republish my articles on their own websites, but due to government regulations I need those that republish my articles to include this “About the Author” section with each article. In order to comply with those government regulations, I need to tell you that the controversial opinions in this article are mine alone and do not necessarily reflect the views of the websites where my work is republished. This article may contain opinions on political matters, but it is not intended to promote the candidacy of any particular political candidate. The material contained in this article is for general information purposes only, and readers should consult licensed professionals before making any legal, business, financial or health decisions. Those responding to this article by making comments are solely responsible for their viewpoints, and those viewpoints do not necessarily represent the viewpoints of Michael Snyder or the operators of the websites where my work is republished. I encourage you to follow me on social media on Facebook and Twitter, and any way that you can share these articles with others is a great help.
Picture by IngoMoringo from Pixabay.