It is still too early to say how serious an epidemic Covid-19—as the latest coronavirus outbreak is now known—will prove to be.
It has already killed far more people than the 2002-3 Sars pandemic, caused by another coronavirus.
But what’s certain is that Covid-19 has acted like an X-ray revealing the changing structure of the world economy.
Sars also originated in China, but the Chinese economy is four times the size it was in 2002-3.
Covid-19 has paralysed the second biggest economy in the world. The Chinese government decreed that last week people would return to work after an extended New Year holiday. But on Wednesday last week passenger traffic in China was down 85 percent compared to the same day last year.
The head of the European Union Chamber of Commerce in China estimates that economic growth there in the first quarter of 2020 will fall to 2 percent. That’s a third of the 6.4 percent growth rate in the same quarter of 2019.
China is the world’s biggest exporter and the biggest importer of raw materials. So a slowdown there will have a big impact on global supply and demand for goods and services.
Chinese traders are cutting their orders for goods as diverse as copper and gas. China is starting to import live chickens from the US to make up for domestic animals that can’t be fed because of travel restrictions.
But it is on the supply side that the impact is likely to be most severe.
China’s ascent to the biggest manufacturing economy in the world was part of a global restructuring of production. Northern transnational corporations developed global production networks outsourcing labour-intensive assembly particularly to east and south east Asia.
The classic example is the Taiwanese firm Foxconn, which employs over a million workers to assemble Apple products in China.
The Chinese government is trying to upgrade the economy technologically. It wants high-value activities such as research and development—which northern transnational corporations keep in their home regions—to take place in China.
China now produces 30 percent of global exports of electrical and electronic components. The major Asian economies, along with the US, are also heavily dependent on Chinese exports of machinery and transport equipment.
According to the Financial Times newspaper, Wuhan province where Covid-19 originated “has emerged as a hub for China’s booming cars parts and accessories exports, a sector that has tripled in the last decade while engine and motor exports have risen four times”.
The manufacturing industry was already in the doldrums worldwide.
But the car industry is also vulnerable because of its dependence on global supply chains.
As a Financial Times columnist noted, the big car firms were already in trouble. “‘Dieselgate’, the uncertain future of the internal combustion engine and the rise of electric vehicles, the trade barriers of Brexit… and the trade wars waged from the White House.
“All these have contributed to the industrial recession in Europe and America.”
Covid-19 may indeed open a new front in the trade war between the US and China. The US medical supply chain relies on Chinese suppliers for finished drugs, drug components and medical supplies such as the face masks now so much in demand.
“This is a wake-up call for an issue that has been latent for many years but is critical to US economic and national security,” Donald Trump’s trade adviser Peter Navarro said last week.
So Covid-19 doesn’t just show the effects of globalisation—our physical vulnerability to the planetary spread of diseases and economic dependence on global supply chains.
It may prompt further efforts at what is being called “de-globalisation”—bringing production back to the home regions of the advanced economies. Finally, it sheds more light on the unhealthy condition of contemporary capitalism