“Made in China” Economic Hit Coming Right Up

Mish Talk – by Mish

Economic contagion due to the coronavirus is underway. Hyundai halted production. Sony, Apple, and Ford issued warnings.

If you can’t get parts, you can’t build cars.

And due to a coronavirus-related manufacturing halt in China, Hyundai to Shut Down Some Production.

Hyundai, the world’s fifth-largest carmaker, announced Tuesday that it was suspending production lines at its car factories in South Korea, one of the first major manufacturers to face severe supply-chain issues because of the coronavirus.

Many auto plants in China have already shut down because of the virus, including factories run by Hyundai, Tesla, Ford and Nissan. Hyundai plants in South Korea would be the first to shut down lines outside of China, and comes as Hyundai has ramped up production in China over the past two decades.

Economic Contagion

The Wall Street Journal comments on China’s Economic Contagion

More than 20,000 coronavirus cases have been confirmed worldwide—an eight-fold increase over the last week—and experts say hundreds of thousands may not yet have been diagnosed. Two dozen or so countries have reported cases, and many have restricted travel from China to limit the contagion. Companies are evacuating employees from China.

U.S. manufacturers such as Ford, Apple and Tesla have temporarily halted production. One-sixth of Apple sales and nearly half of chip-maker Qualcomm’s revenues come from China. So do 80% of active ingredients used by drug-makers to produce finished medicines. Because China is the world’s largest manufacturer and an enormous consumer market, the economic freeze will disrupt supply chains and reduce corporate earnings.

China’s GDP growth was already almost certainly lower than the official figure of 6%, and it is likely to fall by a third or more.

It’s probably too much to ask Mr. Trump to lift his tariffs on Chinese exports, though it would help. At the very least he could give Beijing more latitude to meet its promise to buy $200 billion more in U.S. products over the next two years. The last thing the President should want when campaigning for re-election is an economic pandemic.

Coronavirus Menace

The New York Times reports SARS Stung the Global Economy. The Coronavirus Is a Greater Menace.

Apple, Starbucks and Ikea have temporarily closed stores in China. Shopping malls are deserted, threatening sales of Nike sneakers, Under Armour clothing and McDonald’s hamburgers. Factories making cars for General Motors and Toyota are delaying production as they wait for workers to return from the Lunar New Year holiday, which has been extended by the government to halt the spread of the virus. International airlines, including American, Delta, United, Lufthansa and British Airways, have canceled flights to China.

Companies Warn On Impact

MarketWatch discusses the Earnings Impact.

  • Wynn Resorts Ltd. has among the highest China exposure, as the company derived about 75% of total revenue from Macau over the last 12 months, according to estimates based on FactSet’s proprietary algorithm.
  • Sony Corp. CFO Hiroki Totoki, said the fallout from the coronavirus slowdown on the company’s manufacturing, sales and supply chain operations could wipe out its revised guidance for 2019.
  • BP said current demand for the year is between 300,000 and 500,000 barrels a day, not the 1.2 million it had anticipated for the year. “There is no question coronavirus, I suspect, will impact demand this year,” a BP executive told investors.
  • Jewelry retailer Pandora said it’s already struggling in China in 2020 but the virus is presenting other threats. “China is currently also challenged by the coronavirus that have left streets empty and forced store closures,” Pandora CEO Alexander Laxik said. “China is the biggest jewelry market in the world and we’re not going to walk away from this.”
  • Royal Caribbean Cruises Ltd. estimated that cruise cancellations and itinerary modifications as a result of the coronavirus will have a 25-cents-per-share impact on earnings. The company has already canceled eight cruises out of China.

Known Disruptions

Major disruptions include Ford, Apple, Tesla, Qualcomm, Hyundai, Wynn resorts, Sony, BP, Pandora, Royal Caribbean, GM, Toyota, Nike, all the airlines, and many drug makers.

If it’s “Made in China” there will be an economic hit.

This is on top of the Trump-sponsored manufacturing slowdown. Trump’s steel tariffs have started a Rolling Cascade of Downstream Pain

Freight shipments have collapsed: Cass Year-Over-Year Freight Index Sinks to a 12-Year Low

And GDP Internals show business investment contraction: Ignore the Headline, Real GDP is Much Worse Than It Looks

So forget about Trump’s Trade War Ceasefire with China. All that did was halt escalations.

Due to the coronavirus China cannot possibly honor commitments. And it’s highly doubtful they could have or would have anyway.

Mike “Mish” Shedlock

Mish Talk

6 thoughts on ““Made in China” Economic Hit Coming Right Up

  1. I told ya. With everything closed and at a halt in China, you are going to see shortages and rising prices because for some reason, the businesses of the entire world liked to put all of their eggs in one basket by outsourcing all of their manufacturing jobs to one country, China. So what do you expect?

    Who knows, maybe that was the elites plan all along or something. Disease and economic destruction all rolled in one.

    1. Good points, NC. I’m sorta thinking this is an economic sabotage against China because they weren’t biting Trumps China trade deal.

  2. ‘Major disruptions include Ford, Apple, Tesla, Qualcomm, Hyundai, Wynn resorts, Sony, BP, Pandora, Royal Caribbean, GM, Toyota, Nike, all the airlines, and many drug makers.’……….Samsung made a smart move closing their factories in China and moving to India and Vietnam. Re: ‘drug makers’ ….one of the reasons I have been urging my brother to get off prescription meds….

  3. I received this notice this morning from one of the very large US corporations I work with. I cannot name them due to non-disclosure – But Henry has mentioned them on the broadcast before:

    Listed below is a quick update/talking points on the situation to use in your discussions with customers. We will continue to provide regular updates on the situation:
    • Government has mandated a 1-week extension of Chinese New Year
    • Factories have confirmed they will re-open as scheduled on 2/10, but have expressed concerns over their labor force returning on time
    • We are working with our freight carriers to secure capacity, Ocean Freight schedules not expected to be impacted but increased demand and congestion are likely
    • Air Freight Carriers (Delta/American) have suspended Cargo Shipments through March/April, minimizing capacity for Air Shipments which will result in higher premiums
    • The situation is very fluid, we are working with our vendors and partners daily to minimize the impact of this situation to our customers
    • While we do not see near term supply impacts from the situation in China, we are recommending that our customers begin to build inventory levels to protect against additional and/or unforeseen supply impacts from China.

    Just a FYI –

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