The Coronavirus And Its Global Trade Implications

By Halderman

02 /28 /20

Observers have likened the impact of the 2019-nCoV, or the coronavirus, to the sudden outbreak of war. It could have a potential global economic impact of as much as $5 trillion if it is not contained soon. In addition to hitting the Chinese economy especially hard, global trade markets and supply chains have been shaken in recent weeks. Economists sharply revised 2020 economic forecasts downwards, and stock exchanges around the world have lost considerable value.

As of late February 2020, the coronavirus has been responsible for over 2,700 deaths and has infected over 80,000 people in 37 countries and territories around the world. While not yet labeled a pandemic by the World Health Organization, the world is watching carefully as China and other countries are seeking to contain the virus.

Origination of the virus and affected provinces

This outbreak affects multiple provinces in China, including Guangdong, Jiangsu, Zhejiang, Beijing and Shandong. Together, these provinces employ 50% of all Chinese workers and account for 48% of sales for the entire Chinese economy. Additionally, a Dun & Bradstreet survey noted that 51,000 companies globally have one or more suppliers in the affected provinces.

The overall impact of the virus to date has prompted the rating agency Moody's to revise its 2020 global growth projection down by two-tenths of a percentage point. With China itself accounting for approximately 20% of global GDP, the continued spread of the virus may eventually lead to a decrease of one full percentage point for global economic growth.

China and U.S. farm purchases

In what the Chinese government is calling an act of good faith, it is planning on purchasing U.S. farm products in March of 2020 to comply with its commitments as part of the phase one trade deal. Pork, beef, soybeans, natural gas and crude oil all have retaliatory tariffs by China. The new trade deal, which took effect on February 14, lifts the tariffs on these goods, easing price and production pressure on U.S. farmers and mineral extraction companies.

With several multi-billion dollar purchases expected in 2020 as part of the agreement, farmers are understandably nervous about the potential impact of the coronavirus on China's ability to comply with the terms of the deal.  This may impact the demand from China as a result of a weaker economy and could impact purchases from other affected countries as well.  Many US farmers remain hopeful that the purchases outlined in Phase 1 of the trade deal will positively impact demand and therefore commodity prices for 2020 and beyond.

How to prepare for the unknown

Competition for labor may increase.  As is the case with widespread catastrophes, a disruption in the global supply chain can create a temporary or even permanent surge in demand for U.S. labor. Companies that rely on China for pharmaceuticals and other products that may be disrupted by the virus will have incentive to increase their domestic supply, which will lead to the consequent increase in demand for U.S. labor.  Keep your employees happy and engaged. 

Maintaining stable operations and preparing for some potential disruptions in Chinese demand may be the best course of action if you are planning for the next two years of farm operations. Identifying best practices and diversifying your crops can help mitigate downside risk. The commodity markets will remain highly volatile so be prepared to take advantage when profitable pricing opportunities arise.

Halderman Real Estate and Farm Management is an expert in following global farm trade trends and market disruptions. We can help you whether the difficulties brought on by the coronavirus and other challenges. To learn more or discuss your particular concerns, contact us today.