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Why Coronavirus Affected the Global Economy

by Craig Moser on March 6, 2020

There’s nothing like a virus to remind us that we are all connected.  That’s why coronavirus affected the global economy.

An Example

To show what I mean, look at your phone for a moment. In a sense, you’re holding a miniature version of the world. The screen you’re looking at probably came from Japan. Your phone’s accelerometer likely came from Germany; the gyroscope, from Belgium. The wi-fi chip may have come from Mexico, or perhaps Brazil; the audio chip, from the United States.

And your phone’s battery? That probably came from China.(1)

For a company like Apple to sell you an iPhone, they rely on the work of millions of people based in dozens of countries. That is a supply chain, one of thousands of arteries that keep the world’s economy beating.

A chain is only as strong as its weakest link, though. Imagine an epidemic breaks out near one link – a factory that produces widgets, for example. Suddenly, people can’t go to work.

Manufacturing stops. Fewer widgets are produced.

Somewhere down the chain, another factory makes gizmos – but they need widgets to do it. What happens when there aren’t enough widgets? Soon, there won’t be enough gizmos, either.

And at the end of the chain, the company that turns the widget-powered gizmos into gadgets has fewer of those to sell. Which means they can’t reach their quarterly estimates, which means their stock price falls. As do the stock prices of the widget and gizmo manufacturers.

The Result

The result is a black day for the markets. Like the one we had on February 24.

This is exactly what’s happening right now. With one of the world’s largest economies, China is at the center of many, many supply chains. From electronics to blue jeans, the world relies on China for its resources and manpower. But China is also at the center of the current outbreak, with over 77,000 confirmed cases and 2,500 deaths.(1) This is why even companies like Apple and Adidas have recently admitted that COVID-19 will probably affect their bottom line.(2 & 3)  This is also why coronavirus affected the global economy.

 

1“Where is the iPhone Made?” Lifewire, November 9, 2019. https://www.lifewire.com/where-is-the-iphone-made-1999503

2 “Apple Signals Coronavirus’s Threat to Global Business,” The New York Times, February 17, 2020. https://www.nytimes.com/2020/02/17/technology/apple-coronavirus-economy.html

3 “Adidas, Puma Warn of Coronavirus Blow,” The Wall Street Journal, February 19, 2020. https://www.wsj.com/articles/puma- tops-hopes-but-warns-of-coronavirus-hit-11582106613

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