how the coronavirus outbreak could affect the economy Essays | Online Homework Help
For this assignment, I chose to analyze the video “how the coronavirus outbreak could affect the economy”. I agree with the video.
The video was posted in January and at that point, I would have agreed that it would have a negative affect. Today, looking back, I also agree and the evidence is quite clear about how it has impacted the economy in a negative way. Let’s take a look at the ways that COVID19 has impacted the economy.
First, unemployment is skyrocketing. According to the April jobs report, the unemployment rate is 14.7%. The United States lost 20.5 million jobs in April. Before the outbreak, it was between 3% and 4%. In New Jersey alone, where I happen to live, the state has seen over 1 million unemployment claims come through since the outbreak.
Second, the stock market has taken a huge hit. The Kellogg School of Business at Northwestern University did a study on this. They looked back to 1900 and found that no other pandemic has caused such volatility in the market and as many daily jumps as COVID19 has. Between February 24 and March 24, there were 18 jumps of more than 2.5%. Of these 18, 7.4 were contributed to the pandemic. The DJIA is roughly 5,000 points off of its all time high.
Third, businesses of all kinds have taken dramatic hit to sales. Most businesses are shut down due to not being essential, which has caused the government to take on billions of dollars in debt to relieve them and keep them afloat. Many will still not survive, particularly small businesses. I can personally relate because I own a small business and part of it is non essential retail. Luckily, another part of our business is medical supply which is essential. I have gone through all the processes that you see on the news such as applying for the Paycheck Protection Program and Economic Injury Disaster Relief Loan.
Additional research on this topic:
https://www.usatoday.com/story/money/2020/05/08/april-jobs-reports-20-5-m-become-unemployed-covid-19-spreads/3090664001/ (Links to an external site.)
https://whyy.org/articles/coronavirus-update-n-j-unemployment-claims-soar-above-1-million/ (Links to an external site.)
https://insight.kellogg.northwestern.edu/article/what-explains-the-unprecedented-stock-market-reaction-to-covid-19 (Links to an external site.)
My discussion post is based on the video “Impact of U.S.-China Trade War Felt in Both Countries,” regarding the trade war between the two major world economies. The main point of the video, that a trade war hurts both countries, is one that I agree with.
Based on basic economics alone, tariffs should hurt both parties especially when they go both ways because they artificially increase the price of imports, and domestic firms are forced to pay higher prices for foreign goods or shift to buying domestic goods, which are often more expensive than the import originally was. These higher costs reduce demand for imports, hurting companies that export those goods. Furthermore, the higher costs domestic firms pay are then passed onto the consumer, triggering changes in demand.
This economic theory has been proven true in China, which has been hurt by the trade war. In October of 2019, industrial output growth fell to a 17-year low, just one indicator of many that reflect the impact of tariffs on Chinese manufacturing. Furthermore, entire supply chains are shifting and moving to other countries, often permanent changes that will haunt the Chinese economy for years to come. The shift in import export relationships has also helped China because the trade deficit means that the import tariffs US companies pay result in a decreased supply of the dollar, increasing its value and making it appreciate against the yuan. In turn, consumers and companies around the world can buy Chinese products for less money.
The US has also been affected by the trade war and by the tariffs from both sides. Tariffs have artificially made certain American industries like steel and manufacturing more competitive with Chinese companies, but many other industries have also been negatively affected by the increase in input prices and losing the Chinese market for certain products. Moreover, investors both domestic and international have seen their investments perform poorly as the US stock market prices in higher costs and volatility from the constantly evolving trade war. An article from MarketWatch found that 26% of news stories about equity market volatility are about trade policy, up from a mere 2.7% from 1985-2015. There will also be many other currency fluctuations between the US and other countries as companies shift their supply chains to other countries besides China, changing the demand for different currencies.
The black swan event of Covid-19 temporarily shifted the focus away from the trade war as the globe works together to fight against the coronavirus, but more recently, tensions have increased between the two countries as Trump places blame on China for failing to effectively prevent the rapid spread of the coronavirus. The future is uncertain, but it seems like financial institutions will need to prepare for increased conflict between the two countries.
https://www.forbes.com/sites/charleswallace1/2019/08/09/trade-war-hurting-chinas-economy/#4e1d5f324035 (Links to an external site.)
https://www.npr.org/2019/10/10/768569711/has-the-trade-war-taken-a-bite-out-of-china-s-economy-yes-but-its-complicated (Links to an external site.)
https://www.wsj.com/articles/the-trade-war-hits-china-where-it-hurts-11565552398 (Links to an external site.)
https://www.bbc.com/news/business-49245654 (Links to an external site.)
The coronavirus pandemic will have a lasting effect on many countries’ economies, and many of those effects continue to be felt as the months go on. In the video “How Can the Coronavirus Impact China’s Economy”, Bloomberg’s David Westin interviews John Quelch, University of Miami Herbert Business School Dean. It is important to note that this interview took place January 27, 2020. This was approximately 4-5 weeks after the first reported case of coronavirus in Wuhan, China and a few days into the lock-down measures put into place.
I agree with many of Quelch’s comments as it relates to how coronavirus would impact China’s economy, and for the most part, many of his comments were accurate. From a supply chain perspective, Wuhan is a large steel producing area that provides supply parts to other manufacturing companies in the country. Due to the lock-down measures taken a few days prior to this interview, the factories were shut down by the central government and continued to be shut down for months.
Due to the fear of the many coronavirus unknowns, consumer confidence and consumption dramatically decreased which most would have an impact on the Chinese economy. Personally, as cases continued to increase in the US, I also dramatically decreased my own consumption by not buying as much or as often as I would have a few months ago. The growth of ecommerce, and decrease in retail sales, was another comment made by Quelch that was accurate. When talking about Shanghai and Beijing, the population is nervous about the science around the disease and are being cautious but Quelch did not believe that those two cities would feel the same hit as the Hubei province of China. While I agree that the effects may not “hit” in the same way, there may be other effects within Shanghai and Beijing that would hurt the economy as well. As Quelch mentioned, and as we felt in the US, there were shortages in groceries and medical supplies which led the government to putting additional measures in place to protect against price gauging.
After watching the interview, I wanted to see how much of an effect is already being felt by the Chinese economy and to see if Quelch’s prediction of a 5% decrease in GDP was accurate. In the first three months of 2020, China’s gross domestic product fell by 6.8% which was the first contraction for China since 1992. Much of this was attributed to investor confidence and consumer spending, both of which were detailed by Quelch. Unfortunately, the full economic effects will not be determined or felt until there is a vaccine for coronavirus and things return to the “new normal”.
Below are additional resources, and one interview, which gives some commentary on the effects felt so far, as well as a comprehensive timeline of the coronavirus:
• Coronavirus: A comprehensive timeline of the new coronavirus pandemic, from China’s first case to the present (Business Insider) (Links to an external site.)
• China’s economy suffers its first contraction in 28 years, shrinking 6.8% in an ‘extraordinary shock’ to the global economy (Business Insider) (Links to an external site.)
• News Brief: Reopening States, China’s Economy, Origins of Coronavirus (NPR)
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