Learning Outcomes

Students should apply learning in economics, supply chains, and strategy to discuss the global economic impact of the novel coronavirus, reflect on its impact on their local economies, and brainstorm how businesses might be able to recover.

Source: Photo by Marco Di Lauro/Getty Images

The Issue

A newly discovered coronavirus, namedCOVID-19, was first reported in Wuhan, China on December 31, 2019, and quickly spread to well over 400,000 confirmed cases across the world and more than 18,600 deaths in a matter of months (a live map of global cases can be foundhere, courtesy of Johns Hopkins). As of late March, the new coronavirus has prompted the lockdown of vast areas of China,several European countries, andmajor citiesaround the globe.

China, the epicenter of the outbreak, has the second-largest economy in the world and is an indispensable part of business in today's global economy, namely in manufacturing, trade, and supply chains. Businesses such asNike,StarbucksandApplehave temporarily closed stores across mainland China; many of those companies arewarning of decreased revenuebecause of closed stores and disrupted supply chains caused by COVID-19, but few economists have been able toeven speculate the magnitudeof such economic consequences.

Why Is It News?

Early estimatesproject that COVID-19 could cost the global economy USD 2.7 trillion, with ramifications ranging from gross domestic product to local employment. Globalization has led to companies building supply chains across borders, intertwining national economies, meaning the economic losses will be felt far outside of Chinaexperts, in fact, are already predicting aglobal recession. Carmakers in China had to slash production by roughly15% in the first quarter of 2020due to COVID-19. International exporters shipping copper, nickel, zinc, natural gas, and other raw materials to China's manufacturing plants are slowing down supply immensely, with their freighters being put under quarantine each time they visit China. The country's position as a manufacturing powerhouse and thelargest consumer of raw materialson earth, means any slowdown in manufacturing or supply chain will have ripple effects around the world, causing a severe drop in the commodities market.

The outbreak occurred just ahead of Lunar New Year, normally China's busiest travel season. The lucrativetourism industryin China all but halted, leaving hotels and tour groups empty, whileDisney reportedthe profits from its Shanghai park could drop by USD 280 million. As the virus spreads, the tourism, hospitality, and entertainment industries (and, by proxy, the airline industry) worldwide has suffered similar sudden losses,compounded by the cancellationof conferences, festivals, theatre/concert performances, sporting events, and other large gatherings.

Several industries in the United States are reporting huge losses, and are appealing to the federal government for abailout. As city- or country-wide shutdowns are enforced and expanded, anumber of public spacesare being forced to close their doors, including bars, gyms, restaurants, theatres, and school campuses. Many businesses with remote work capabilities are asking staff towork from home, with mixed early returns, since some businesses aren't necessarily equipped for remote work. A slowdown in business creates a slowdown in labor, andlocal governmentsare quickly having to adapt to support workers who might experience a loss of work or income.

In response to the outbreak, the World Health Organization (WHO) sent masks, gloves, testing kits, and other equipment to countries across the globe, but warns that the world is quicklyrunning out of personal protective equipment. Consumers have startedhoarding face masks, along with other products such ashand sanitizersandtoilet paper, leading to further strain on the system, with bottlenecks slowing distribution, and leaving even less equipment for health care workers on the ground who actually need them.

The largest factor driving these economic losses is not the virus itself, but how businesses, consumers, and governments are responding to the outbreak. How severe and lasting the ramifications will be remains unseen.

Discussion Questions

• 1.With experts predicting large-scale recessions, how else do you think the economic impact of coronavirus will manifest?

• 2.How has the pandemic affected your local economy? Do you think your city or state was prepared?

• 3.Do you think the economyboth globally and locallycan recover from the COVID-19 outbreak? What conditions do you think need to be in place to pave the way for recovery?