The three-month stop in China will hurt the world economy. Some things that may get worse are:

a.- Raw material prices may experience a decline due to China's lack of demand. In particular, oil can be reduced to $30 or 35 per barrel, perhaps. In addition to reducing oil demand in China, [around the world] there is the issue of reducing long journeys, because people will be afraid to travel among others who may have Covid-19.

b.- U.S. companies, like Apple itself, will be disrupting their supply chain. They will not know when the products will be able to serve or when they will be able to do so.

c.- Debt bankruptcies can proliferate, especially in China. The longer the shutdown lasts, the more chances are that debt bankruptcies will spread around the world.

d.- The world economy can enter recession, with no easy possibilities to re-exclude.

The longer the stalemate, the more likely the Chinese economy is to suffer a major collapse

If the stop lasts a long time, then it is very possible for a new leader to take command of China. And within the economy, there can be huge changes. For example, the provinces of China that are able to relaunch the economy will try to relaunch it, leaving behind the most affected provinces. If this were to happen, it would henceforth have to be negotiated not only with a Chinese government, but with more than one EU administration. And from now on, China will be able to offer the world much less products than it has done so far.

Because of planners around the world, we’ve put “too many eggs in a basket”

Planners are currently focused on efficiency. For example, the fact that a large part of the global industry is installed in China appears to be a good option for efficiency. Unfortunately, that is how we are looking for a problem if China collides with an obstacle along the way. Using the just-in-time (all immediately) model in the supply chain also seems like a good idea, but if a main supplier stays a long time without being able to ship the components, then it appears that having a store by hand would be better.

If we want sustainable or sustainable systems, they need a lot of dubbing. Duplicate systems (redundant systems) are not as efficient, but they are much more likely to be more sustainable in difficult times. Nature recently mentioned this in an article. Among other things, he said:

“A single-cycle system is more unstable because the elimination of nodes or links from cycles interrupts the sustainability feedback mechanism”

It's a one-cycle system, more or less like putting all of our eggs in one basket. The elimination of nodes or links from the cycles can be similar to the fall of China in coronavirus problems. Surely the world economy we need must be based on almost many different local economies if we are to ensure the long-term stability of the world economy. Or otherwise, we have to build our systems with a high level of dubbing. For example, in the warehouses we will need large reserves to be able to continue working even if a country does not send us its components, in this case for a problem that is a great epidemic.

Conclusion

The global economy can become very different because of Covid-19. The new virus has no obligation to directly capture other countries in the world to become a problem. The United States, Europe and the rest of the world are very subject to China continuing to function. The world economy has put more eggs in one basket and now the basket is not working as expected.

Now that China produces what the world's markets need, the rest of the world will suddenly realize that those long supply chains were not a good idea. A large ramp will be started to replace failed components in supply chains, but many products will no longer be available. We will soon have to realise to what extent we depended on China to get anything, such as shoes, cars or furniture or electronics. Global carbon dioxide emissions will be significantly reduced by China’s problems, but will the global economy overcome the problems it faces?

There is something ironic about this, and it is possible that the West exaggerates the fear of the new coronavirus: at the moment we do not know what real impact it will have on the population of European or African origin. In the coming weeks and months, we will probably learn a lot. For example, how will the Americans and Australians who have captured Covid-19 evolve on tour boats? What are the consequences of non-Asian people returning from Wuhan on special flights to their countries of origin?

Gallina Tverberg is an actuary specialized in the measurement of risks and uncertainties in the business environment. Our Finite World (Our Finite World) blog works in depth on the consequences of oil and gas scarcity, water scarcity, climate change, etc. in the economy. On this occasion we have translated some passages to ARGIA from the article "Easily overlooked issues with regard to COVID-19", published on February 18.