Feb 13 2020
This article was accurate at the time of its writing.?Please click here for the most up-to-date IBISWorld information concerning COVID-19 (coronavirus)
Just as no industry operates in isolation, no economy operates in isolation. In the wake of the Coronavirus pandemic, China’s moment of crisis is causing a ripple effect across the global economy. Chile is reeling from reduced copper demand, Germany from auto part shortages, OPEC from an oversupply of oil and the North American automotive subsector from shortages of electrical components.
From a broad perspective, the intertwining of the global economy in the age of complex, information-driven supply chains results in chain reactions that disproportionately affect certain US industries. For the US, China’s stalled economy presents two challenges: a largely idled manufacturing sector disrupting trade and reduced demand from Chinese consumers.
Auto Parts Manufacturing
With the average car comprising about 30,000 parts, the intricacy of automotive manufacturing necessitates vast supply chains spanning multiple economies. The recent disruption of Chinese suppliers will weigh on the entire North American auto manufacturing subsector. Despite the continent’s cohesive supply chain under the United States-Mexico-Canada Agreement (USMCA), auto manufacturers still source essential components from Chinese suppliers.
North American auto titans General Motors and Fiat Chrysler rely on China for key automotive components including door hinges, electronics and steering assemblies. Given the close ties among USMCA participants, supply chain disruptions in the automotive manufacturing subsector are also expected to weigh on Mexican and Canadian auto industries. Specifically, IBISWorld anticipates the Auto Parts Manufacturing industry in the US (IBISWorld report 33639), and its analogues in Mexico (33639MX) and Canada (33639CA), will be most significantly affected by the Coronavirus.
Some of the US industries most reliant on Chinese consumers are those related to travel and tourism. Chinese tourists have become an outsized and growing market for the tourism industry cluster as a result of the population’s growing middle class. The trillion-dollar Tourism industry in the US (NN002) is expected to experience the most-drastic declines in demand, particularly in light of travel restrictions specific to Chinese citizens the federal government has enacted in an attempt to control the spread of the illness. Offshoots of and industries dependent on tourism, such as Travel Agencies (56151) and Tour Operators (56152), will also likely experience a sharp decline in sales. In particular, tour operators in New York City have already reported reduced traffic from visitors in the short-term.
The $54.1 billion Semiconductor & Circuit Manufacturing industry in the US (33441a) is a major global supplier of diodes, microcircuits, memory chips and other semiconductor devices. As China’s manufacturing sector has gradually shifted to higher value-added telecommunication and electronic equipment manufacturing, US-made semiconductors have become an essential input in Chinese supply chains. IBISWorld estimates China to account for 26.2% of total industry exports in 2020, establishing China as the industry’s largest export market.
The effective idling of the Chinese manufacturing sector due to numerous city-wide quarantines and precautionary corporate measures will significantly reduce demand for US-made semiconductors during the first quarter of 2020. Moreover, uncertainty surrounding the containment of the virus has paused capital investments in the Chinese manufacturing sector and will likely cause domestic production of semiconductors and circuits to slow further.?
As China continues to mobilize its vast resources in containment efforts, the economic effects of the outbreak will continue to emerge. Thus far, the initial effects have largely weighed on the $6.1 trillion US manufacturing sector (31-33). Disrupted supply chains and an uncertain recovery timeline will reduce production output across a variety of manufacturing industries in the near-term. Moving forward, US industries may seek to curb supply chain risk by diversifying their supply chains, particularly expanding from China to Southeast Asia.
Edited by Sean Egan
Read more about how the Coronavirus is affecting the global economy:
From IBISWorld AU - Going Viral: Coronavirus Weighs on Australian Economy
From our sister company ProcurementIQ -?Coronavirus Spotlight: The Technology Sector
From our sister company ProcurementIQ -?Coronavirus Spotlight: The Automotive Industry
From our sister company ProcurementIQ -?Coronavirus Spotlight: Medical Supplies and Pharmaceutical Markets