From Antibiotics To iPhones: Why Coronavirus Could Cause A Supply Chain ‘Shock’
Protective supplies such as surgical masks are becoming a scarce commodity and health officials are warning that U.S. need is going to outstrip what the world can supply as the coronavirus outbreak grows.
More than 2,010 people have died from the coronavirus and 75,305 cases are reported worldwide. All but six of the deaths have been in China.
It’s not just masks. Anything related to Chinese manufacturing has been disrupted by the coronavirus, from antibiotics and tech products to auto parts. According to the U.S. Department of Commerce, 97 percent of all antibiotics in the U.S. originate in China — “the smokestack of the world“.
Apple has warned its production will slow down. Nintendo too. Nissan and Hyundai shut down entire auto plants because they can’t get the parts they need from China.
Economists and businesses worry about shortages of everything — a “supply shock.” In that scenario — high demand and low supply — expect prices go up, Marketplace reported.
The most notorious supply shock was the oil shock of the 1970s, according to economist Carmen Reinhart, who teaches at Harvard’s John F. Kennedy School of Government. Gas prices quadrupled, setting off hyperinflation.
Only about 10 percent of the workforce has returned to Foxconn, which manufactures Apple’s iPhone, according to Reuters. The company expects to be at about 50 percent capacity by the end of February, Fortune reported. Samsung plants are also operating at partial capacity.
Apple Inc. has warned investors that it will miss revenue goals because the coronavirus outbreak in China has cut the production of iPhones.
Amazon is reportedly stockpiling orders of Chinese-made products.
It is now mandatory to wear surgical masks in public in many Chinese cities, South China Morning Post reported. Masks are almost impossible to find. There are reports of price-gouging, hoarding and fake products. Long lines have prompted panic reminiscent of wartime scarcity.
China is the world’s No. 1 producer of medical facial masks, but some of the country’s workers are unable to report to work at factories and exports have been curtailed. With rising demand and insufficient supply, China has adopted wartime-like rationing and increased imports.
“China’s dominance in the global supply chain as a result of competitive pricing has come back to bite the country where it currently hurts the most,” SCMP reported.
World Health Organization chief Tedros Adhanom Ghebreyesus warned on Friday of a chronic shortage of masks, gloves, gowns and other protective equipment used by medical professionals to protect against the epidemic.
“We know that eventually our need is going to outstrip what the world supply chain is managing at the moment,” said Dr. Amy Compton-Phillips, chief clinical officer of Providence Health, in a CNBC interview.
Compton-Phillips oversees the Providence hospital system in seven states, including Providence Regional Medical Center in Washington state where the first person in the U.S. to be diagnosed with the virus was treated.
Reports of shortages of the protective N95 respirator masks are particularly concerning, Dr. Theresa Madaline told BusinessInsider. Madaline is a healthcare epidemiologist at Montefiore Health System and the assistant professor of infectious diseases at the Albert Einstein College of Medicine.
“These are for infections where you have very teeny tiny particles that would not be captured via regular surgical mask,” she said. Snags in the supply chain could pose a risk to medical practitioners who rely on N95 respirator masks.
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The Centers for Disease Control and Prevention recommend that medical employees working with coronavirus patients wear N95s specifically.
More than 21 percent of goods and services imported into the U.S. in 2018 came from China to the tune of $539.5 billion worth, according to the Office of the U.S. Trade Representative. The biggest imports to the U.S. were electrical machinery ($152 billion), machinery ($117 billion), furniture and bedding ($35 billion), toys and sports equipment ($27 billion), and plastics ($19 billion). Agricultural products came in at $4.9 billion.
“Supply chains have already started to shift away from China,” said Ruomeng Cui, assistant professor of information systems and operations management at Emory University in a Fortune interview. “Long term, it will probably be a good thing for the U.S. in the sense that manufacturers here could receive more orders . … Buyers across the world need reliable suppliers. If China can not be that, those companies will need to find new suppliers.”