Coronavirus may strengthen economic ties between the United States and China

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In these self-isolated days, the silver coatings are almost completely hidden by clouds. However, if the worst-case predictions of mass deaths and overwhelmed healthcare systems are not met, it must be argued that the way the virus spreads, in waves from Asia to Europe and the US. USA, instead of simultaneously everywhere. It will help the global economy recover faster than many people think.

Think of the end of February, before the virus had spread widely in Europe and America. At the time, US companies fear that virus-related shutdowns in China will affect production of everything from shoes and consumer electronics to computer hardware. China's industrial production fell for the first time in January and February as the country struggled to contain the virus. Nearly 95 percent of Fortune 1,000 companies have first-tier or second-tier suppliers not just in China but near Wuhan, the epicenter of the outbreak. It looked like China would be a big loser as companies around the world sought to diversify their supply chains to be less vulnerable to future disruptions.

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Today's supply chains are remarkably optimized for efficiency. Widely used software and logistics have allowed manufacturers to source parts such as chips, camera lenses, and sensors globally. Inventory management software enables companies to carry less inventory, buying just what they need, as they need it to make what they sell. So any sudden interruption in the supply chain threatens a cascade of disruptions. When China closed in late January, it seemed that companies around the world, from Apple and Samsung to home appliance manufacturers, furniture companies, and even clothing chains, could not stock enough products to meet demand in Europe and the United States. . In February, for example, Fiat closed a plant in Serbia because it was unable to obtain the necessary parts from China.

Then the virus turned off the rest of the world.

At first glance, that suggested the bad news was getting worse. But there is more to the story than that. If the West had gotten rid of the virus, the global economy would have been significantly affected by disruptions in the supply chain, which could have led American companies to search for parts and factories outside of China, and even outside Asia. Consulting firm McKinsey estimated that China supplies for the US production lines. USA And Europe would be in danger of "out of stock," which is a fancy way of saying they will run out, in April or May.

Now, the aggressive spread of the virus to Europe and the United States is reducing demand at least as much as Chinese factories cut their production. For many weeks we will not know the full impact in Europe and the USA. But with the closure of all companies except essentials, it will surely be great. At the same time, Chinese, Japanese, and South Korean factories are coming to life and increasing production. The result: We now have the strange potential of having enough supply on hand just as demand begins to return to the West sometime later in the spring.

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To see how this unfolds, consider Microsoft. CEO Satya Nadella said Tuesday that the supply chain "is getting back on the rails" and that "it feels good about where we are in manufacturing." The problem at the moment, he continued, is that the company does not have a clear idea of ​​the demand for its products. Microsoft has already withdrawn its guide for its Windows segment, saying it may not be able to meet its previous revenue targets. That's just a harbinger of the problems that most companies – in technology and elsewhere – will likely see in April and May.

None of this will look pretty. In reality, everything will look statistically abysmal. But when the dust stabilizes, we can find that the virus's migration pattern helped us avoid the worst-case scenarios where supply and demand fall simultaneously. That will allow for a faster restart, although it will still take months. Undoubtedly, some companies will still run out of parts, and consumers may find they can't find favorite products for a while, but the overall picture may be better than previously feared.

For the United States and China, this suggests that each of us will need each other more, not less, in the coming year. With cash-strapped companies that simply need to survive, they won't be able to collectively spend the hundreds of billions of dollars needed to build new supply chains and diversify production anytime soon. In January, it seemed as if the move toward decoupling was going full steam. And that will also be a victim of the virus.

We were about to start doing it alone; For the near future, at least, we are trapped with each other more than ever.


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