Government Coronavirus Prevention Measures Threatening Global Supply Chains, Experts Tell House Committee
The coronavirus epidemic continues to threaten global supply chains as governments increase prevention measures around the world, experts told the House Small Business Committee during a March 10 hearing. Yanzhong Huang, a senior fellow for global health at the Council on Foreign Relations, suggested that what he characterized as overreactions by governments led to discrimination by other countries on the original country's trade and travel. He cited “unjustified documentation” requested from Greek importers of Italian cheese, problems in Poland for Italian lettuce, Kuwait's resistance to Italian fruit, and Ukraine refusing Italian-grown apples.
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He noted that countries that originally barred imports of pork because of H1N1 were slow to roll back those bans. In his submitted testimony, Huang wrote: “Government and public responses informed by fear can cause huge damage to world economy. The shutdown of factories in Wuhan and beyond threatens the global supply chain for the automotive, electronics, pharmaceutical and fashion industries. Due to U.S. dependence on China and India for active pharmaceutical ingredients and generic drugs, closure of Chinese factories has also raised serious concerns about potential drug shortages in the United States.”
Jennifer Huang Bouey, the Tang Chair in China Policy Studies at the Rand Corporation, noted the effects of China's coronavirus lockdowns on exports. She quickly ran through the areas where China is dominant in manufacturing in speaking in front of the committee, and in her written testimony, fleshed out the details. China makes 53% of the world's motor vehicle parts; 52% of basic metals; 58% of mineral products; 58% of textiles and apparel; 40% of wood products; and 35% of pharmaceuticals.
“Several of these sectors are part of intricate, cross-provincial domestic supply chains that sometimes even reach outside China -- notably, the electrical equipment, electronics, automotive, and textile sectors,” she wrote. “Although it is too early to know the full effects of disruptions in supply chains, particularly those with key segments in the most affected areas (Hubei Province, for instance, is a hub for the automotive, electrical equipment, and ship-building sectors), some disruptions are inevitable.... Upstream [small and medium-sized enterprise (SME)] closures are felt by downstream factories that are relying on the parts they produce for SMEs. Without the parts and necessary logistics to bring in materials and ship out products, many factories can barely produce or have no place to store the products. Most of the international shipping companies are slow in getting back to work because of the ongoing epidemic and various travel bans.”
She also covered the drag on logistics in her written testimony, saying that $350 million weekly worth of global shipping has evaporated. “The COVID-19 impact on global logistics will take an extended period to correct. Inbound container volumes at U.S. seaports are projected to be down 12.9 percent in February and 9.5 percent in March, compared with the same time a year ago,” she wrote.
The day of the hearing, the Port of Los Angeles said that its imports declined 22.9% in February. “As factory production in China remains at low levels, we expect soft volumes in March,” the port said, but it does expect a surge later.
Bouey said that at the end of February, only 30% of small businesses in China had reopened.
She told the committee that the U.S. can learn how to support its small businesses from examining China's experiences. She said banks should ease their lending practices, and that paid sick leave and health insurance will promote good practices. “The lacking of these social supports can prolong disease transmission,” she said. Looser lending will be needed if the U.S. economy is as disrupted as China's has been. She said a survey in February found that 30% of SMEs in China had income decline by more than half, and that another 28% saw a 20% to 50% drop in income at the same time they kept paying salaries and insurance for their employees.