Coronavirus Outbreak Could Have Major Economic Impact

January 31, 2020

Last week, the world learned that a deadly, fast-moving disease called the coronavirus had appeared in several Chinese cities. The mysterious illness has already killed more than a hundred people and infected thousands more, leading the World Health Organization to declare the coronavirus a global health emergency. Despite its potentially worldwide implications, though, right now the disease is primarily localized in China. Along with placing entire cities on quarantine, Chinese authorities have also extended the annual Lunar New Year holiday so that businesses will remain closed until at least next week.

Many American companies are following the government’s lead and also taking time off until the coronavirus can be possibly contained. Ikea announced that it would close all 30 of its Chinese stores and send its more than 14,000 employees home on paid leave. Starbucks, meanwhile, shut down half of its 4,292 stores in China, which is the coffee chain’s second biggest market. On the manufacturing side, Apple is changing the routes of its supply chains away from China and looking for factories in other countries where it can make up for shortfalls. The appearance of the coronavirus has also stalled production at many automobile plants operating in Wuhan, the Chinese city considered to be the epicenter of the outbreak. With the entire city on lockdown, car companies like General Motors, Honda, Nissan, and many others have halted their assembly lines completely. 

At this point in time, it remains unclear when these companies will resume normal operations. What’s more, they represent just a small selection of the thousands of organizations that have ground to a halt since the coronavirus outbreak. Restrictions on Chinese travel outside of the country could also have a big impact on global tourism revenue. Each year, Chinese tourists spend more than $258 billion when traveling abroad, nearly twice what Americans spend. The loss of that income could damage the bottom lines of countless companies around the world. Analysts fear that China could see a drop in growth similar to what it experienced in the early 2000s during the SARS outbreak. Of course, right now only time will tell how this tragic situation affects China as well as global economic systems. “There will clearly be implications, at least in the near term, for Chinese output,” said Federal Reserve chair Jerome Powell. “We just have to see what the effect is globally.” 

Questions:

  1. How have foreign companies operating in China responded to the coronavirus outbreak?
  2. How could the coronavirus outbreak potentially affect world tourism?

Source: Alexandra Stevenson, “Coronavirus Outbreak Tests World’s Dependence on China,” The New York Times, January 29, 2020.

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