”At night I could hear the blood in my veins;
It was just as black and whispering as the rain...
On the streets of Philadelphia.”
”Streets of Philadelphia” as performed by Bruce Springsteen
We are witnessing the largest quarantine in world history. Wuhan, China, a city of 11 million, has been shut down and isolated. Chicago, an industrial city of nine million metro area residents located in the American heartland, is perhaps the most comparable U.S. city to Wuhan.
I have managed money through SARS, the Ebola epidemic and many other worldwide health crises. Most impacted markets for about a month, followed by a recovery. At this writing, the coronavirus has officially been contracted by over 40,000 people in 30 countries and killed over a thousand. There is currently no known cure, though Chinese officials are hopeful about recent containment efforts.
China is the world’s second largest economy, and the world’s second largest importer of goods. It’s also the fastest growing consumer market. China has averaged high single digit GDP growth for well over two decades now. With first quarter growth projected at only 5%, in large part due to the disease, and industries like shipping, retail and tourism especially impacted, it’s easy to understand the potential impact of the virus on the global economy.
The global economy is no longer a zero-sum game: what is bad for China is ultimately also bad for the U.S., especially with so many U.S. companies operating and selling products in China. When Wuhan sneezes, New York catches a cold. How severe that cold will be is the question.
Wuhan is a sprawling, thriving industrial hub and the capital of China’s Hubei province. It has been literally cut off from the rest of the country, an action that the World Health Organization terms “unprecedented.” Some 60 million people in other nearby cities have been isolated as well. Imagine Chicago, Minneapolis, Cleveland, Detroit and the entire upper Midwest completely quarantined.
When people leave their homes, or enter stores or hotels, they are sprayed with disinfectant; they must have their temperature taken daily. Food and medical supplies are being trucked into the city in massive quantities. Hospitals are being constructed virtually overnight. Most residents do not venture out. Some 50,000 pets are reportedly trapped in homes where owners were away and are not being allowed back into the city.
As Phillip Inman writes in The Guardian, “Carmakers are shutting plants...ports are far quieter than usual. Small and medium-sized businesses...are known to already be in trouble. Reports from regions across China’s central belt tell of livestock farmers only days away from running out of feed...It is impossible to think that weeks of standstill will not have a considerable impact on economic output...In response, the authorities are redoubling efforts to shore up the economy, slashing tariffs on U.S. imports, and making borrowing cheaper for businesses and consumers.”
Will this impact the global economy long-term or are the effects of the coronavirus already baked in? Time will tell.