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Newsletter 12 - February 24, 2020
Welcome to the 12th edition of Trade War. The economic fallout from the coronavirus continues to widen, putting more pressure on multinationals to move at least part of their supply chains out of China. Meanwhile, at least one official in the Trump administration is using the crisis as an argument to bring manufacturing and presumably he hopes jobs, back to the U.S.
“Got to get that back on shore”
White House trade adviser Peter Navarro says the crisis shows, “not surprisingly,” that the U.S. has offshored too much of its supply chain, reports Bloomberg News. “A lot of [the U.S. supply chain] is in China, some of it is in India, some in Europe, but we’ve got to get that back on shore,” Navarro said on February 23.
AirPods, iPad, & Apple Watch Crossing the Strait?
Meanwhile big U.S. (and global) brands like Apple may be moving some of their supply chain out of China, but it isn’t coming to the U.S. Apple is “shifting manufacture of AirPods, iPad, Apple Watch from China to Taiwan due to ongoing coronavirus outbreak,” reports the Taiwan News.
Apple in China continues to take a hit as its supplier factories are running at only partial capacity, and business is lackluster as it begins to reopen its stores which earlier had been shut because of the virus, reports China’s Global Times. “Apple's iPhone sales in China may fall by at least 40 percent to 50 percent in February and March compared with the same period last year,” the state paper reports, citing industry analysts.
Worker dorm quarantines
Even as some of China’s hundreds of millions of migrant workers start to return to their work places, many are first facing quarantines. At Apple top supplier Foxconn’s Kunshan facility, at least dozens are being held in quarantines in their dormitories, reports NPR’s Emily Feng.
And a blow to wages
All those workers who are undergoing quarantine likely at reduced pay and those who have yet to return, are taking serious salary hits. For the average migrant worker returning to work two or three weeks later than usual, that means a reduction in annual income of roughly 5-6%, 1-1.5 trillion RMB, or 1-2% of GDP, estimates Beijing-based finance professor Michael Pettis.
Surviving is the goal
At smaller firms, just surviving is the goal. According to a survey this month of small- and medium-sized Chinese companies a third “only had enough cash to cover fixed expenses for a month,” with another third only enough for two months, reports Bloomberg News.
There’s no money
“Across China, companies are telling workers that there’s no money for them -- or that they shouldn’t have to pay full salaries to quarantined employees who don’t come to work,” reports Bloomberg’s Lulu Yilun Chen
Media and Sell Side dripping out reality on lag
Investor Dan McMurtrie of Tyro Partners predicts two quarters of “severe supply chain disruption.” That ugly fact is still being obscured however as “Media and Sell Side [are] dripping out reality on lag because they have to maintain access,” McMurtrie tweets.
Service sector, just as bad — maybe worse
“Most of the coronavirus attention has focused on manufacturing supply chains. The hits to the service sector, in my opinion, are just as bad — maybe worse — and not recoverable,” tweets Tony Fratto of Hamilton Place Strategies. “People aren’t going to make extra restaurant visits or take make up the taxi rides they missed.”
China economy running at 50% to 60% capacity
China’s economy was likely running at about 50% to 60% capacity in the week to Feb. 21, says a Bloomberg Economics report.
Back in the U.S. some are predicting that security reviews of foreign investment—through CFIUS or the Committee on Foreign Investment in the United States—are set to grow dramatically. Calling it a “bombshell” Peterson Institute research fellow Martin Chorzempa predicts it will be much more “cumbersome and costly” for foreigners to invest in the U.S. going forward.
"Ears and Eyes of the Party" It’s worthwhile to recall how close the links have always been between China’s state-controlled media organs and the Chinese Communist Party. Here is Xinhua editor He Ping admiring a banner reading "Ears and Eyes of the Party."
China car sales going down…
And a personal plug as publication nears. The My new book THE MYTH OF CHINESE CAPITALISM will be released March 10. “A clearheaded and persuasive counter-narrative to the notion that the Chinese economic model is set to take over the world” says Publishers Weekly. Available for preorder: