The global supply chain Armageddon is happening. The economies of the world are more interconnected than ever. There are many ‘single points of failure’ in these complex and global operations, of which many of them originate in China.
A new poll via Shanghai’s American Chamber of Commerce (AmCham) discovered that 50% of US firms operating in China say shutdowns of factories have impacted their global operations due to the Covid-19 outbreak, reported Reuters.
About 78% of these firms warn that their staffing is currently short at the moment, which would prevent the resumption of full production, leading to massive shortages of products in the next several months for Western markets.
Many of these companies, about 109 in total, have operations in Shanghai, Suzhou, Nanjing, and across the Yangtze River Delta, are regions currently experiencing mass quarantine of citizens, industrial hubs shuttered, and transportation networks halted.
“The biggest problem is the lack of workers as they are subjected to travel restrictions and quarantines, the number one and number two problems identified in the survey. Anyone coming from outside the immediate area undergoes a 14-day quarantine,” said AmCham President Ker Gibbs.
“Therefore, most factories have a severe shortage of workers, even after they are allowed to open. This is going to have a severe impact on global supply chains that are only beginning to show up.”
As we noted earlier this month, many companies were slated for last Monday to resume production, with full production expected by the end of this month. However, that’s likely not going to happen, throwing much of the world’s complex supply chains into chaos.
The economic impact of shutting down major industrial hubs in China with more than 400 million people in quarantine, some reports actually indicate the total could be 700 million, is generating a massive shock that could tilt the global economy into recession. These disruptions will cause world trade growth to plunge. Already, recession bells are ringing in Japan and Singapore, as it appears, these two countries are on the brink of disaster.
It has also been reported that supply chain woes are expanding outwards from China, moving from East to West.
Last month, several car factory plants in South Korea were crippled because they could no longer source parts from China.
Several days ago, it was reported that a Fiat Chrysler Automobiles plant in Serbia was halted because it ran out of parts sourced from China.
It was also reported that General Motors could halt some operations in the US because it soon might not be able to receive parts from China.
As we noted on Sunday night, the world is witnessing the “ugly end of globalization.” Trade war and virus impacts on global supply chains have sent de-globalization into hyperdrive and could trigger the next worldwide recession.
US firms with severed operations in China are already working on contingency plans to rework their operations out of Asia and bring a more localized approach to sourcing parts.
The AmCham survey also said US firms with operations in China are expected to cut revenue for the year because of the disruption.
To sum up, severing a complex supply chain with international exposure will only lead to lower world trade growth and increased de-globalization that could very well trigger the next financial crisis.