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How China’s novel coronavirus outbreak is disrupting the global supply chain

The spread of novel coronavirus in China has focused great attention on public health in that country and around the world. But the outbreak is also having a major economic impact, with quarantines imposed, flights suspended and factories shuttered. William Brangham reports and talks to The Washington Post’s David Lynch about the outbreak’s implications for the global supply chain and more.

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  • Judy Woodruff:

    Most of the attention on the outbreak of this new coronavirus is appropriately focused on public health concerns in China and around the world.

    Here in this country, 66 percent of U.S. adults say that the virus poses a real threat to public health. That's according to the latest "PBS NewsHour"/NPR/Marist poll.

    As quarantines and travel restrictions multiply, many companies that rely on China are also hurting from this outbreak.

    William Brangham is back tonight with a look at the early economic fallout.

  • William Brangham:

    You have heard about major airlines suspending flights into and out of China, but you may not know that many large companies have shut down stores and offices in the country. Others are halting work at factories within China, which can deal a serious blow to the global supply chain of parts and merchandise.

    Today, Hyundai Motor Company announced it will suspend vehicle production at most of its South Korean factories in three days because it can't get needed parts from China. It's the first carmaker outside China to make this announcement.

    David Lynch covers global economics for The Washington Post. And he joins me now.

    Welcome.

  • David Lynch:

    Thank you.

  • William Brangham:

    Sticking with this Hyundai announcement, they're basically saying, we can't keep making cars if we can't get these parts coming out of China.

    Is it your sense that this is a harbinger of what's to come?

  • David Lynch:

    Well, that's the worry, that this is the canary in the coal mine, because Hyundai is not alone in the auto industry or in the global industries across the board in depending upon Chinese factories for key parts.

    The auto industry in the U.S. depends on Chinese suppliers for something like 15 percent of its components. Consumer electronics is even more dependent, up to 50 percent of what's needed for consumer game consoles, smartphones, laptops, computers and the like.

    So, if Chinese goes off line for any appreciable length of time, that's a big problem.

  • William Brangham:

    One of your most recent pieces in The Post really touched on — and I think, for people who don't appreciate the role that China does play in the global economy and the supply chain, can you just explain a little bit more about its centrality?

  • David Lynch:

    Sure.

    And this is one of the big changes since 2003, which was the last time, during the SARS epidemic, that we saw this kind of runaway medical scare.

    China is now four times as large as it was then, in economic terms.

  • William Brangham:

    Four times in 17 years?

  • David Lynch:

    Correct, $14 trillion economy.

    And it's also become the center of global production networks in any number of key industries, as we have said, electronics, autos, medical equipment, industrial machinery, pharmaceuticals. Eighty percent of the raw materials used by American drug companies to make generic drugs come from China.

    So, again, if there is any sort of lengthy interruption there — and we don't — we should say, we don't know how long this problem will last.

  • William Brangham:

    Right.

  • David Lynch:

    If things come back online in a week or two, this will be a hiccup. It will be a bump in the road. It will be forgotten pretty quickly.

    But the concern is, as this virus continues to spread, and the Chinese authorities continue to struggle to contain it, how long is this going to last?

  • William Brangham:

    And I guess we're not epidemiologists. That's really the mystery, and that's the thing that they're trying to get to the bottom of.

    The other thing that you and others have reported that I didn't quite appreciate is how much of a domestic market — I mean, China, yes, exports to the world, but they themselves have a booming domestic market that we sell to.

  • David Lynch:

    Absolutely.

    And this is another big change. We have gotten used to thinking of China as a low-cost factory export platform for the world. But it's now — the Chinese domestic market is the largest market for movies, for autos, for all sorts of consumer products like this. And American companies are there to sell into this.

    Apple, for instance, sold $44 billion worth of product in China to Chinese consumers last year. All the stores in that country are now closed.

  • William Brangham:

    We understand that some of the quarantines for certain regions might be coming off, with the idea being that those factories could theoretically open again.

    But you were telling us before the end of the Chinese lunar new year, enormous number of people coming back into the cities, but it's not clear if they are going to be going back to work and if it is going to be safe for them to do so.

  • David Lynch:

    Correct.

    At the moment, the theory is that most of the factories will come back online on February 10. But in Hubei province, which is where Wuhan is, the center of the epidemic, it's February 13. And that's the current planning.

    As you say, typically, the Chinese lunar new year, this is the big annual holiday. So, everybody floods out of the cities, goes home to their ancestral villages, coming back at a time when domestic transport has been interrupted, because they're trying in the home market to use the same sort of isolation that's being applied globally to cut off that transmission.

    It may make it much harder than is normally the case for workers to get back to their jobs.

  • William Brangham:

    Responding to the economic fears about this virus, the Trump administration has been downplaying it, saying, we don't think it is going to be a big impact here.

    And the stock market thus far seems to have not viewed this with too much alarm. Does that reaction surprise you or make you sanguine?

  • David Lynch:

    It surprises me a bit, just because I think the downside risks here are obvious.

    The White House, Larry Kudlow, the national economic director, said last week that he didn't anticipate any material impact on the U.S. economy. That was early days.

    I think, today, he's said that they do anticipate an impact on the recently signed U.S.-China trade deal. China is supposed to be making enormous new purchases of American products, farm goods, energy, manufactured goods.

    These were ambitious targets, $200 billion extra over two years, an ambitious target before this crisis. Kudlow said today it's going to take longer than expected to get those export orders because of the illness.

  • William Brangham:

    All right, David Lynch of The Washington Post, thank you.

  • David Lynch:

    Thank you.

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