Opinion: Coronavirus outbreak will have human, economic impact in U.S.
The coronavirus outbreak is, first and foremost, a human health crisis. With tens of thousands of world citizens sickened and over two thousand confirmed dead, the first dimension of this tragedy is human.
The second dimension is also human, and it involves the millions of people in China and other countries — including the U.S. — affected directly by the crisis. This includes people in Michigan, and their coworkers and suppliers and friends and family that have been in China during the frightening months of January and February 2020.
Unfortunately, Americans were presented a narrative of events in China that greatly underestimated the gravity of the health crisis. Perhaps unwittingly, many of our own institutions missed clear signs that the crisis was serious, and as a result we missed opportunities to move more quickly.
In our first Anderson Economic Group Alert on this crisis, issued on Feb. 4, we noted that China had arrested the heroic doctor who first attempted to call attention to the outbreak. Sadly, Li Wenliang later died from the illness he contracted helping others.
Dr. Wenliang is today a hero to people in China. His arrest should have been a signal to the world that information originating from official sources in China should not be accepted at face value. By our Feb. 10 alert, we pointedly noted that China was pursuing a “political imperative” rather than focusing on its own citizens’ health, and that we did not rely upon any government reports from that country in our assessment of the crisis.
Regrettably, ours was a minority view. As late as last week, Wall Street analysts could be seen on television talking about the virus “tapering off”; numerous new articles repeated claims of factories re-starting production in Hubei province; and the prevailing assessment was that China had “learned” from its experience with SARS. Upbeat articles about building whole hospitals within a few days were commonplace. An oft-repeated prediction was that the virus would cause a “slowdown” in production of about 15% this quarter.
In fact, much of Hubei province remains in quarantine, or under virtual house arrest. Many thousands of people are sick, with the actual number unknown. Some of these are confined in makeshift facilities that lack health supplies as well as doctors. Pictures of Wuhan and other cities show deserted streets, and an army has been deployed to check on, test, detain and prevent the movement of people they suspect could have been exposed to the virus. The full power of the Chinese government and the Communist Party have been deployed, including its power to surveil its citizens, detain or imprison them, and prevent them from traveling or even leaving their home.
When assessing the economic consequences of such a tragic situation, one must first recognize what is happening. This is a human crisis. In human crises, people do not go back to factories and cheerfully produce cars. They also don’t produce food, electronics, clothing or other goods. The people in China are in survival mode, and we should empathize with them for their plight first, and account for production shortfalls later.
Here in Michigan, multiple sectors of our economy will feel the impact. First, our automotive industry will be directly affected. Our assessment is that every China-based automaker will be severely affected, and that includes the Chinese operations of General Motors, which has in recent years sold more vehicles in China than in the U.S.
Other automakers strongly affected include Volkswagen, Honda and Hyundai. Tesla is particularly vulnerable to supplies of batteries and materials such as cobalt that are concentrated in China. Far from a “slowdown,” we anticipate that China’s auto production will drop a startling 2 million units in 2020. That is nearly 7 times the production drop due to the UAW strike against GM in 2019.
Other automakers, including Ford and Chrysler, will also be affected as parts and assemblies originating in China will become scarce in the coming months. Most of these components have substitutes available from other suppliers in North America, Japan, and Korea. However, we can expect the rest of 2020 will feature automakers scrambling to keep U.S. production lines moving. The North American production of most vehicles — apart from battery electric vehicles — is quite robust, and we currently expect the large majority of these models to be available to U.S. consumers throughout the year.
Our travel, logistics and electronics industries will also be affected. Detroit and the Automation Alley region are a world center for technology and have extensive trade in ideas and components with China. Both will be crimped by this crisis. Our higher education institutions, some of which have become beacons to students in other countries, will also feel the burden of both caring for stranded and frightened students, and the difficulty in traveling and recruiting students.
On top of this, nearly every part of Michigan has ties to Chinese coworkers, family members, friends, students and teachers. Many people in China — possibly three-quarters of a billion — are currently enduring quarantines, shutdowns, surveillance and the constant threat of illness and death. I am aware of many efforts by American businesses to help people in China, often putting human interests in front of concerns about production and property.
In the face of this human suffering, the economic impact is certainly secondary. However, it is still vital that we identify — and if possible, mitigate — the impact on the employees, family members and coworkers for whom we have a responsibility to protect.
Without reliable information from China, it will continue to be difficult to anticipate the toll of the virus. In the face of such uncertainty, people in Michigan should continue to focus on the immediate health and well-being of affected friends, families and employees. Second, we should plan for a significant reduction in production, travel and the ability to communicate and share information with people in China.
Lastly, we should remember that, for China, a political imperative guides the country’s response. That bias must be taken into account if we are to make accurate assessments in the coming days.
Patrick L. Anderson is the principal and CEO of Anderson Economic Group, a consultancy founded in 1996. He is also the executive chairman of Supported Intelligence, an artificial intelligence software firm.