Before the global #Coronavirus pandemic, there was the U.S. — China trade war which has taken a back seat while countries tackle the surging apocalypse which has killed thousands and cause a global lockdown. China has shut its borders to contain a second surge of the outbreak.
The last time there was this kind of global emergency was in 1918 when Spanish flu killed over 50 million. As we all know, China is the production powerhouse of the world and outsourcing manufacturing to China is based on sound economics — cost effectiveness derived from economies of scale. This has worked for the work so far so good but with threats like Coronavirus, which emerged from Wuhan, China, which has caused a lockdown of the global economy, there will be significant changes.
As we speak, Trump’s argument of “America first” sounds plausible. Throughout President Trump’s presidency, he has tried to convince U.S. multinationals to bring production back to the country. His position is enhanced with the recent unprecedented virus outbreak, not like anything seen in recent times.
For instance, Apple is largely dependent on China for production of iPhones because of cheap labour but as it stands. With China’s borders closed and Americans wary of what comes from China because of the deadly virus and the world not knowing when this crisis will end, Apple management will begin to consider other factors not just cheap labour in production of goods.
Given China’s closed system and belligerent attitude to global affairs, the origin of Coronavirus, CEOs of Western multinationals manufacturing in China will begin to look to bring some of their production home or to locations like India, Africa and South America where the governments are less bellicose and predictable.
What this means for China’s economy is that Western countries will begin to invest in local manufacturing and seek ways to lower cost of manufacturing in their economies. If it means bringing in cheap labour from Africa or elsewhere, they will begin to consider their options. The world has never been disrupted like it has happened and continued investment in China is an existential threat to world stability.
Consequently, if the Chinese government planned the pandemic as a way of bolstering their economy, it was an ill thought strategy. And it is backfiring. Thousands of ships with containers from China are in international waters and destination countries aren’t allowing them in and if this continues for the next few weeks, the Chinese economy will stagnate and decline. With companies not getting orders and goods shipped out stranded on the high seas. That is impending recession.
If North American and Europe are shutdown. There will be no customers for Chinese companies. Africa accounts for less than 10% of Chinese exports. As stated earlier. China is weakening its economic power. With Europe and North American shutdown, Chinese economy will go into crisis. After this pandemic, Western countries will invest more in their country’s production capabilities to forestall uncertainty in the future and it is China’s loss.
The pandemic gives Trump the needed platform to continue his American nationalism crusade. He doesn’t need to convince say Apple to bring most of its production home going forward. They are already affected by the pandemic and they will begin to consider relocating certain production back to the United States to avoid future scenarios.
Anyone who thinks this Coronavirus pandemic is strengthening China’s superpower status doesn’t know much about geopolitics. The main fulcrum on which China stands is manufacturing. American and European companies have no choice than to move most production home. That is China’s loss. Coronavirus pandemic is all Trump needs to bring U.S. manufacturing back to the country. As we speak Apple is almost crippled because its production depends heavily on China. They will begin to relocate back home.
Cheap production won’t be the only major factor going forward.
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