Nothing has emphasized more the fragility of the global economy more than the pandemic. And while inflation has been the top subject in many of the reporting, we need to pay attention to the fact that the US relies heavily on the manufacturing in China for their goods in the US and many portions of that country are in lockdown in response to the omicron variant.
China has a 0-COVID public policy – this means they aim at 0 covid cases. As some outlets have reported, China currently has an indefinite lockdown in 25 million people Shanghai, one of China’s top manufacturing and export hubs. The lockdown has led to food shortages, inability to access medical care, child separations, and the report of pet killings.
This lockdown is expected to cost $46 billion per month, at least. This is in addition to the Shenzhen lockdown past month that cost $30 billion. Shenzhen is one of the top manufacturing cities and the largest electronical manufacturing in the world. Your iPhone, computer chips, and more come from that region. With Shenzhen and Shanghai in lockdown, economic growth expected at 5.5% in China will not be met.
This matters because, the domestic policies in countries where the US relies heavily for manufacturing will have a ripple effect on the US’s economy. Shanghai has the largest port in the world, it handles over 20% of Chinese freight traffic in 2021 and is currently understaffed. Food supplies are rotting, and incoming cargo is averaging 8 days before its transported elsewhere. This could mean an influx in cargo for the US in the coming months and major traffic jams in the US’s major ports.
In the long run, many economists see the decoupling of the Chinese and US economies happening. That the pendulum has swung back into local sourcing and away from globalization.