What the new coronavirus means for the world economy
The smartest insight and analysis, from all perspectives, rounded up from around the web:
The old adage was that when America sneezes, the world catches a cold, said James Areddy at The Wall Street Journal, but it's now China's health crisis that is "testing the entire global economic system." As the coronavirus outbreak spread this week, uncertainty "disrupted worldwide trade and supply chains" and forced factory closures by corporations like Tesla, Anheuser-Busch, and Apple, which makes many of its camera components in Wuhan, the city at the heart of the epidemic. The Shanghai market dropped 7.7 percent early this week as "pharmaceutical giants, financial institutions, and technology multinationals evacuated their expatriate workforces." Brands like Levi Strauss, McDonald's, and Starbucks have closed stores, and Hollywood will lose more than a billion dollars in Chinese ticket sales. Major airlines have cut off flight service to China, leading to a falloff in Chinese travelers, who spend "roughly $6,000 each" in the U.S. According to Goldman Sachs, the virus could reduce U.S. output by up to 0.5 percent in the first quarter, but "no one really knows."
Sorry, but there is no silver lining here for the U.S., said Noah Smith at Bloomberg. In "spectacularly insensitive" remarks, Commerce Secretary Wilbur Ross opined that the coronavirus could "help to accelerate the return of jobs to North America." That's not just heartless, it's wrong on the merits. Multinationals were already rethinking their reliance on China, but they haven't moved jobs back to the U.S.; they've just gone to Vietnam and Bangladesh. If you think that pain in China will help U.S. industries "you know nothing about 21st-century economics," said Paul Krugman at The New York Times. "Anything that disrupts imports raises production costs" and hurts U.S. manufacturing. The impact of the virus "on the U.S. economy will be like an extreme version of Trump's trade war."
If you're worried about the U.S. stock market, you should probably just stay put, said Allan Sloan at The Washington Post. When the market falls, you'll inevitably see it blamed on the virus. "Every day that stock markets are open, there are stories that purport to explain why." Soon things go in the opposite direction, but "you almost never see stories that pose the question of whether previous stories were based on flawed information."
We may not have much information, but we do know the stakes are very high, said Nicholas Spiro at the South China Morning Post (China). In 2003, during the severe acute respiratory syndrome, or SARS, outbreak, China made up about 9 percent of the world economy. "Today, it accounts for nearly one-fifth." China's consumers, "already under pressure," are staying home en masse. Worst case, said Rana Foroohar at the Financial Times, this could turn out to be "exactly the sort of unexpected trigger event that many market participants have been fretting about." China's share of global growth has quadrupled since 2003, when "consumer spending wasn't nearly as developed, and Chinese tourism was still mainly inbound." The past four global recessions have been triggered by the U.S., but China could break that streak.
This article was first published in the latest issue of The Week magazine. If you want to read more like it, try the magazine for a month here.