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The virus that quarantined entire cities in China has spread far beyond, raising the specter of a global pandemic. As cases of novel coronavirus rise in other countries, panic is rippling through financial markets. Grant Thornton economist Diane Swonk joins Judy Woodruff to discuss the virus' economic impact, including effects on travel and tourism, global supply chain and consumer demand.
And now to the financial fallout.
And for that, we turn to Diane Swonk, chief economist at the advisory firm Grant Thornton.
Diane Swonk, welcome back to the "NewsHour" to you.
Oh, good to see you.
So, what is it that the financial markets have seen today and over the last few days that has caused what happened?
Well, you really saw over the weekend the sort of crescendo of information of it no longer being just a China thing, which, frankly, in and of itself, is more major than they were giving it credit for.
I'm surprised the markets haven't reacted sooner, to be honest with you, given that China has touch points into every other economy in the world and into our own. They're a very part of our global supply chain.
So you could shut down production in the U.S. by shutting down production in China. But what they saw over the weekend was then it moved to Korea, and then in Italy, and this idea that you're going to have these sporadic closures of entire areas, Lombardy region now under closure.
That you're going to see parts of Korea shut down. That those kind of economic disruptions, a lost sweater sale in the month of February doesn't come back in April. The idea that you have lost sales, and it's both supply and demand. We have got production not going, and then, on the other side of the equation, you actually have sales not be made and putting businesses, some businesses out of business entirely, certainly stressing profits, which is what you saw, the reaction, that it could stress a lot of profits.
And the U.S. is not immune. We have multinational companies that operate in the world.
A reminder that this economy is global. If anybody doubted it, it's here.
This is we have got we have got linkages all over the world. Our financial markets are inherently tied. And you can't undo those ties. We have actually got the G20 meeting and saying, well, maybe we should be more regionally based now. Maybe we shouldn't be so globally tied.
Well, you can't undo you can't put the genie back in the bottle. It's out.
You mentioned at the beginning people looking at what happened over the weekend.
I mean, the virus has been in the news for weeks.
We have been watching what's been going on in China.
What is it about right now that you think triggered today's sell-off?
Well, over the weekend, you saw I think the idea that it's not just a China situation, that it is global in scope.
I call it an economic pandemic, if it's not an actual health pandemic yet. And what that means is, it's going to hit in all these different places, as the professor laid out, that could hit in all these different places and cause these massive disruptions.
And the disruptions are not easily fixed with fiscal stimulus, giving tax cuts or cuts in interest rates. You can't recoup some of these losses. And there's also a lingering effect of the reality that something that was once a horror movie and we saw it on a screen now is a reality check, that this can actually happen.
And that's going to change the behavior of businesses. There's a fear factor out there that's acting going to act as a tax on the global economy, and in the U.S., people being afraid to congregate, people being afraid to go to public places, these conferences being canceled.
Those all have ripple effects, and you can't recoup them.
Is there a sense that governments you just said there's there are limits to what governments can do.
Is there anything governments can do? Obviously, taking all the health precautions possible, but…
And there are things. There are some prescriptions. But the bottom line is, yes, we can get some lower interest rates helps companies that are in a fragile financial condition because of this, so it can help them. So, if we cut interest rates, that can help financial financially those companies.
But just stimulating fiscal stimulus, if people are staying in their homes, that's not going to help on that front.
Are there parts of the world or particular industries, Diane Swonk, that are particularly hurt or benefit…
Well, the health industry yes, the pharmaceutical industry will ultimately benefit from this, because they will come up with a vaccine. They are already working on one, although that will take eight to nine months.
But the other side of it is, the ones that are hurt we saw oil stocks get really hit today. That's because we're not using as much energy. All of a sudden, people are measuring China's production by what the air quality is, because it's improving, because their production plants aren't up and running fully and operating right now.
So the manufacturing sector gets hit. But you also see it in travel, tourism, and all the international retailers. China's consumers are pretty big consumers everywhere. In France, they're saying right now a 30 to 40 percent reduction in tourism. Those are big numbers.
And you mentioned to us, just quickly, that Mexico may benefit.
Yes, Mexico could benefit, because it's within the NAFTA region in the USMCA. So we have a trade agreement with them.
And that means more production closer. They like to be able to track it closer to home, rather than in China. And so people will be pulling out of China and actually moving to Mexico. They won't necessarily be moving to the U.S., but it keeps it within the North American trade region.
A lot of moving parts.
Keeping an eye on it all.
Diane Swonk, thank you very much.
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