How Does the Coronavirus Impact International Trade with China?

It’s scary. Over 7,711 people are confirmed as infected with the Wuhan coronavirus, which has already killed 170 people, according to the last numbers I saw from the New York Times.

The Wuhan coronavirus, so-called because it started in Wuhan and is in the coronavirus family of viruses that includes SARS, is a new disease that has quickly spread from its epicenter. It is an epidemic in China, but cases have begun to be reported around the world, including elsewhere in Asia, Australia, Europe, and North America. Yes, that includes some cases in the United States.

Governments as well as the scientific and medical communities are rushing to contain the virus, learn about it, and ultimately stop it. Nowhere is this a more dire need than in China, where there are more cases of this coronavirus than there were altogether of SARS during China’s outbreak of that coronavirus in 2002 and 2003, again according to the New York Times.

Obviously, the threat to people’s lives is the biggest concern when it comes to the Wuhan coronavirus. But its effects go beyond just health, including to the area of international trade and shipping, which is, of course, what Universal Cargo’s blog is about.

If you import or export goods from or to China, here’s the kind of impact you’re likely looking at.

Delayed Implementation of Phase One Trade Deal with China

Since we just did a three part series going through the Phase One Trade Agreement with China chapter by chapter, let’s start with the impact the Wuhan coronavirus could have on this trade deal.

In article 7.6 of the Phase One Deal, it states:

In the event that a natural disaster or other unforeseeable event outside the control of the Parties delays a Party from timely complying with its obligations under this Agreement, the Parties shall consult with each other.

I think the Wuhan coronavirus easily qualifies as a natural disaster or other unforeseeable event outside the control of the Parties. This disease is enough to put China in a state of disaster. Rightfully so, fighting the coronavirus deserves China’s full attention.

That full attention could come at the expense of getting regulations prepared to be in compliance with the Phase One Trade Agreement. While it’s not a certainty, I expect there to be consultation between China and the U.S. that would lead to an extended timeline for Chinese compliance with the deal.

Negative Impact on China’s Ability to Reach Trade Deal Totals of Imports from the U.S.

We’ll stay with the potential impacts on the Phase One Trade Agreement for just a moment more. The virus could make it hard for China to reach the $200 billion increase of spending on U.S. goods. This one comes from the South China Morning Post:

… with the outbreak driving down commodity prices and placing huge swathes of Chinese territory on lockdown, analysts are warning that import targets that already seemed aspirational have become even tougher to reach. The longer the crisis lasts, the worse the damage to China’s ability to meet the purchase target.

…

“The viral outbreak definitely throws a wrench into those [purchasing] plans, not just in terms of logistics — as major ports and transport links are closed or disrupted — but also in [terms of] policymaker attention,” said Nick Marro, global trade lead at The Economist Intelligence Unit in Hong Kong. “The country will be mobilising most of its resources to handle the outbreak, which is now the top item on the policy agenda. The trade war with the US inevitably has to come second.”

The arguments made in the article, and not just the quoted bit above, for the virus making it more difficult for China to reach its spending obligations on American products are good; however, I will play devil’s advocate here for just a moment.

While the cause or origin of the Wuhan coronavirus is still unknown according the articles I’ve read about it, I have seen and heard suspicions at best and accusations at worst that point a finger at Chinese agricultural goods as the genesis for the virus. Even if this, let’s call it a theory, turns out to be completely wrong, just the suspicion or rumors of dangerous agricultural goods in China could decrease the demand for it and increase the demand for agricultural goods from the U.S., helping China reach purchasing obligations.

All that being said, I think the expectation that the Wuhan coronavirus will make it harder for China to reach spending obligations harder is more likely. Even if it does not increase the difficulty, China could use the outbreak as an excuse for not importing as many billion-dollars-worth of American goods as agreed upon, and it would be hard to think that wasn’t a legitimate excuse.

Extended Closing of Chinese Markets

Factories and markets in China were already basically shut down for a while as the Wuhan coronavirus outbreak is coinciding with the country’s biggest holiday and festival, Chinese New Year. That shutdown is extended by the outbreak.

It is impossible to know how long and how wide spread extended shutdowns will be. That depends on how the efforts go in stopping this spreading pandemic. Obviously, the number one goal must be stopping the Wuhan coronavirus from continuing to spread.

Beyond the continued closure of factories, we are seeing transportation within China, including train and flight cancellation.

What this adds up to is a disruption in Chinese production. Perhaps the timing is as good as it can be for disruption because the peak season has passed as well as the time when U.S. importers frontload goods from China to beat the disruption that comes with Chinese New Year.

However, the disruption still points to a longer period before U.S. shippers can get back to importing from China. Fear of importing goods from the source of this coronavirus pandemic might also cause lower than normal demand for goods from China, which certainly could effect the international shipping market as a whole.

Cancelled Cargo Ship Sailings from China

This is already the time of year when carriers do a lot of blank sailings because of the aforementioned Chinese New Year. I would expect a dramatic increase in that because of the coronavirus outbreak.

A CMA CGM ship that was sailing from China has had 6 crew members “confirmed ill, suffering fever and high temperature,” according to a short article on PortandTerminal.com. While at first feared to be the coronavirus, a GCaptain article reports that the sick crew recovered and the Wuhan coronavirus was ruled out.

Despite that good news, the coronavirus scare on the ship is enough to cause shipping lines to be extra cautious about sailing cargo ships in and out of China.

Reduced Trade with China for the Time Being

In conclusion, international trade with China is being severely dampened by the Wuhan coronavirus. Shippers should expect both importing from and exporting to China to be at least slowed for a while and perhaps unavailable until the Wuhan coronavirus is brought under control.

Obviously, Universal Cargo will be watching what’s happening with trade in and out of China closely in order to serve your businesses’ needs well.