Coronavirus epidemic could cause U.S. shortages

The toll of the ongoing coronavirus epidemic in human life is already devastating enough. But as quarantines continue in China, it looks like the global economic impact of the virus could be incredibly destructive too.

China is a manufacturing superpower, supplying both critical equipment and items of convenience. With some of the country’s citizens unable to report to work and exports curtailed, there are already shortages that have some companies worried.

Amazon, for instance, is reportedly already stockpiling orders of Chinese-made products. And health care officials warn that protective medical equipment is already becoming scarce, as demand in China outweighs the amount the country can supply.

“Anything related to manufacturing is disrupted,” says Ruomeng Cui, assistant professor of information systems & operations management at Emory University’s Goizueta Business School. “That ranges from tech products to toys to auto parts.”

China exported $539.5 billion in goods and services to the U.S. in 2018, according to the Office of the U.S. Trade Representative. That’s more than 21% of all imports into the country. The biggest exports to the U.S. were electrical machinery ($152 billion), machinery ($117 billion), furniture and bedding ($35 billion), toys and sports equipment ($27 billion), and plastics ($19 billion). Agricultural products came in at $4.9 billion.

In more real world terms, some 60% of the apple juice consumed in the U.S. reportedly comes from China. And the country is a leading supplier of key ingredients in drugs many Americans rely on, including medicines for blood pressure, depression Alzheimer’s, and Parkinson’s. According to the Department of Commerce, 97% of all antibiotics in the U.S. originate in China.

Some companies and industries are already reporting shortages of other products due to coronavirus-related issues.

Under Armour warned investors of a $50 million to $60 million potential Q1 financial shortfall because of the outbreak, saying it expected “industry wide” delays in deliveries. President and CEO Patrik Frisk also said the company was concerned about material shortages, from fabric to packaging.

“Given the ongoing uncertainty, it is possible that this situation could have a significant material impact both financially and operationally on our full-year including the potential for additional top-line contraction,” he said on an earnings call.

Nintendo, meanwhile, says to expect “inevitable” production and shipment delays for its Switch gaming console as well as the recently released “Ring Fit Adventure” fitness game.

“We will work hard to deliver the product as soon as possible, while keeping an eye on the effects of the new coronavirus infection, and we look forward to your understanding,” Nintendo said in a translated statement.

Foxconn, which manufactures Apple’s iPhone, has only recently resumed production. It’s slow going, though. Only about 10% of the workforce has returned, according to Reuters. The company expects about 50% capacity by the end of February. Samsung plants are only operating at partial capacity as well.

Some automakers, including Hyundai, have had to shut down factories, as they’ve run out of components from China. Even hockey sticks are becoming scarce.

Shortages could lead to price increases in products that are China-dependent, but Emory’s Cui says that will likely be a short term problem that will even out as companies shift their supply chains.

The medium- and long-term dangers, she says, lie in the impact of these work stoppages on Chinese manufacturing businesses. While some local governments in China are alleviating things like rental expenses, those protections won’t extend to all businesses. And some medium-sized companies, says Cui “are going to face huge risks of bankruptcy,” which could further disrupt the supply chain.

“If this virus lasts, then buying power is going to become a big issue,” she says. “[Chinese] businesses are already in debt and they’re going to have trouble paying those debts.”

That, in turn, could actually benefit manufacturers in the United States and other countries.

“Supply chains have already started to shift away from China and this is going to make that process occur faster,” says Cui. “Long term, it will probably be a good thing for the U.S. in the sense that manufacturers here could receive more orders . … Buyers across the world need reliable suppliers. If China can not be that, those companies will need to find new suppliers.”