Filed Under: Business

China’s zero-COVID policy equals trouble for supply chain, inflation

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Just when the U.S. was starting to see improvements in the supply chain, small COVID outbreaks in China resulting in big shutdowns threaten to wreak havoc on the world economy.

“Particularly if China sticks to a no-COVID policy, Omicron can really disturb supply chains again,” Federal Reserve Chair Jerome Powell said on January 11.

With about two weeks to go before the Beijing Winter Olympics, the Chinese government isn’t taking any chances. It’s enforcing its hardcore “zero-COVID” policy: The goal of having no COVID cases at all in a country of 1.4 billion people.

Last week, officials identified the first locally transmitted Omicron case in Beijing. In China, one case is enough to lock down a facility, spurring mass testing and quarantining. With tight restrictions, global companies are already seeing production delays.

With the highly-contagious Omicron variant throwing a wrench in China’s manufacturing machine, companies from Samsung to Volkswagen to Nike are adjusting or suspending operations in China and tapping contractors in other countries.

The global supply chain has struggled since the first COVID shutdown in 2020, when imports from China to the U.S. fell by 50%. Repeated outbreaks over the past two years have had wide-ranging impacts, given China makes up about a third of the world’s goods.

Prior to Omicron, experts were looking to see significant supply chain relief in early 2022, two years in to the pandemic. But if Omicron takes hold in China as hard as it has in the U.S. and Europe, not only will that relief be delayed, it could reverse the improvements already seen in the global supply chain.

Powell and others warn the bottleneck could continue putting pressure on inflation, which is already at a 40-year high.

SIMONE DEL ROSARIO: JUST WHEN WE’RE STARTING TO SEE IMPROVEMENTS IN THE SUPPLY CHAIN, SMALL COVID OUTBREAKS IN CHINA ARE RESULTING IN BIG SHUTDOWNS, WITH THE ABILITY TO WREAK HAVOC ON THE WORLD ECONOMY.

JEROME POWELL: particularly if China sticks to a no-COVID policy code Omicron can really disturb the supply chains again.  

SIMONE DEL ROSARIO: WITH ABOUT TWO WEEKS TO GO BEFORE THE BEIJING WINTER OLYMPICS THE CHINESE GOVERNMENT ISN’T TAKING ANY CHANCES. IT’S ENFORCING ITS HARDCORE “ZERO-COVID” POLICY: THE GOAL OF HAVING NO COVID CASES AT ALL IN A COUNTRY OF 1.4 BILLION PEOPLE.

IN CHINA ONE CASE IS ENOUGH TO LOCK DOWN A FACILITY.

WITH TIGHT RESTRICTIONS, COMPANIES ARE ALREADY SEEING PRODUCTION DELAYS. 

NEWS ANCHOR: my sources are telling me that this is quote a total mess.

SIMONE DEL ROSARIO: THE HIGHLY CONTAGIOUS OMICRON VARIANT HAS CHINA’S MANUFACTURING MACHINE AND PORTS STRUGGLING TO STAY OPEN. BIG NAMES FROM SAMSUNG TO VOLKSWAGEN TO NIKE ARE BEING FORCED TO ADJUST OR SUSPEND OPERATIONS IN CHINA AND TAP CONTRACTORS IN OTHER COUNTRIES.  

REMEMBER THE FIRST SHUTDOWN IN 2020 WHEN IMPORTS FROM CHINA TO THE U.S. FELL BY 50%? THE BOTTLENECK DELIVERING GOODS FROM THAT MOMENT ON HAS BEEN DIFFICULT TO SMOOTH OUT, GIVEN CHINA MAKES ABOUT A THIRD OF THE WORLD’S GOODS. 

IF OMICRON TAKES HOLD IN CHINA AS HARD AS IT HAS THE U.S. AND EUROPE, IT COULD REVERSE ANY IMPROVEMENTS WE’VE SEEN IN THE GLOBAL SUPPLY CHAIN. AND THAT COULD SEND U-S INFLATION EVEN HIGHER THAN THE 40-YEAR RECORD WE’RE AT TODAY.

I’M SIMONE DEL ROSARIO. FROM NEW YORK IT’S JUST BUSINESS.

Just when the U.S. was starting to see improvements in the supply chain, small COVID outbreaks in China resulting in big shutdowns threaten to wreak havoc on the world economy.

“Particularly if China sticks to a no-COVID policy, Omicron can really disturb supply chains again,” Federal Reserve Chair Jerome Powell said on January 11.

With about two weeks to go before the Beijing Winter Olympics, the Chinese government isn’t taking any chances. It’s enforcing its hardcore “zero-COVID” policy: The goal of having no COVID cases at all in a country of 1.4 billion people.

Last week, officials identified the first locally transmitted Omicron case in Beijing. In China, one case is enough to lock down a facility, spurring mass testing and quarantining. With tight restrictions, global companies are already seeing production delays.

With the highly-contagious Omicron variant throwing a wrench in China’s manufacturing machine, companies from Samsung to Volkswagen to Nike are adjusting or suspending operations in China and tapping contractors in other countries.

The global supply chain has struggled since the first COVID shutdown in 2020, when imports from China to the U.S. fell by 50%. Repeated outbreaks over the past two years have had wide-ranging impacts, given China makes up about a third of the world’s goods.

Prior to Omicron, experts were looking to see significant supply chain relief in early 2022, two years in to the pandemic. But if Omicron takes hold in China as hard as it has in the U.S. and Europe, not only will that relief be delayed, it could reverse the improvements already seen in the global supply chain.

Powell and others warn the bottleneck could continue putting pressure on inflation, which is already at a 40-year high.

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