Even as the U.S. and European economies bounce back from the depths of last year’s pandemic-induced recession, businessmen and economists are increasingly concerned that no country can count on a return to prosperity until the coronavirus is beaten back everywhere.
Nongovernmental organizations, such as the World Health Organization, have for months been sounding the alarm about the lack of access to vaccines in the developing world. The growing concern about the impact of a new surge of the virus on the global economy, though, is now is driving U.S. businesses to plead with the Biden administration to prioritize the provision of COVID-19 vaccines to hard-hit developing nations that play a key role in the global supply chain.
“I am writing to urge you to immediately ramp up distribution of excess U.S. vaccines to Vietnam and other key partner countries,” wrote Steve Lamar, president and chief executive of the American Apparel & Footwear Association, in a letter recently sent to the White House.
“This distribution should focus on key populations in these countries, particularly those populations that are critical to the economic success of these countries to quickly foster recovery from this humanitarian crisis, and ultimately, long-term health and stability. Without such a surge in targeted distribution of vaccines, COVID will instead destroy the very industries that these countries depend on for their economic livelihoods.”
US economy still strong
The U.S. Commerce Department reported Thursday that the nation’s trade deficit for June hit an all-time high of $75.7 billion, signaling continued strength of U.S. demand. But a constellation of factors, including massive supply chain disruptions within U.S. borders, rising cases of the coronavirus throughout China and Southeast Asia, and extreme weather in the South China Sea, threatens to disrupt a thriving exchange of goods and services.
Railyards and ports in the U.S. are choked with shipping containers that can’t be delivered to consumers fast enough; factories across Southeast Asia are being idled, as the delta variant of the coronavirus sends case counts soaring across the region; and the beginning of what promises to be a heavier than usual typhoon season already has caused multiple port closures in southern China.
Coronavirus surge hitting Asia
Part of what has allowed the economies of the United States and Europe to rebound as they have over the past six months is widespread vaccination against the coronavirus. Even as the delta variant surges through the U.S., for example, areas with high levels of vaccination are not experiencing the overloading of hospitals and the business closures that marked the early days of the pandemic.
The story is very different across much of Asia, where vaccination levels are far lower. The percentage of the population of Thailand that is fully vaccinated, for example, is just 5.7%. Taiwan’s rate is even lower, at 1.8%, and Vietnam has fully vaccinated just 0.8% of its populace.
One result is that Malaysia, Indonesia, Vietnam, and other countries in the region are being forced to respond to the surging coronavirus caseloads with factory shutdowns and stricter lockdown and social distancing rules.
The interconnectedness of the region’s economy means that shutdowns in one country have knock-on effects in others. Toyota, for example, had to indefinitely shut down assembly plants in Thailand because it cannot get necessary parts from other countries across the region.
After a strong surge in productivity in the first half of the year, even China, the region’s economic superpower, appears to be stumbling. A key indicator this week showed that growth in manufacturing in China has slowed to a crawl. Similar reports from across the region point to a wider slowdown that will only be exacerbated by rising COVID-19 caseloads.
Africa’s woes complicate picture
While the business world is focused on Asia, Paul Baker, chief executive of International Economics Consulting, which has offices in London and Mauritius, said via email it is an open question as to “how Asia’s disruptions will affect the rest of the world when we look at the dependence of the rest of the world on Asia for supplies.”
He added it is a mistake to look solely at Asia as the source of potential disruptions, however, with cases rising in other parts of the world as well, such as Africa, which has the world’s lowest regional vaccination rate at just 5.4%.
“One could also argue that Africa’s current predicament will reverberate into Asian markets, as it is a supplier to Asia of raw materials, and then Asia’s predicament will affect many industries in the U.S./EU [the end consumers],” Baker wrote.
US/EU recoveries untested
Baker also said it may be too soon to diagnose the real status of the U.S. and EU economies, given that they are both in the early stages of a recovery that was, in a way, “artificial.” Both, he said, relied on “massive borrowing” and a decline in COVID-19 infections. Now, much of that fiscal stimulus is ending, and COVID-19 cases are rising again.
They also benefited from a large digital sectors, which “are not disrupted in any significant way by COVID.”
But sectors that are very much affected by COVID-19 are entering into what is normally the busiest part of the year, and they will face serious challenges.
Empty shelves in the future?
From back-to-school sales, through Halloween, Thanksgiving and Christmas, an outsized share of U.S. consumer spending occurs in the last one-third of the calendar year.
This year, though. there’s real danger that U.S. consumers could be confronting bare shelves.
This is partly because of a massive logistical problem. Major railroads stopped transporting shipping containers to the interior of the country because railyards were too full to accept them. As a result, ports found themselves filled with stacks of containers that couldn’t be moved, and they began refusing access to ships.
This is causing retailers to wonder if they will have the goods they need to sell to U.S. consumers in the immediate term, and it also has disrupted the normal flow of shipping containers from the U.S. back to Asia.
As a result, at a time when cargo ships in Asia normally would be taking on containers full of goods destined to sit under U.S. Christmas trees, there is a shortage of containers available to take on even the COVID-19-diminished output of the region’s factories.
“The question that I can't answer, and probably few people can, is if this is something that's going to be cured in a month or two, is going to take to the end of the year, or is going to carry on into 2022,” said David Gantz, the Will Clayton Fellow for Trade and International Economics at Rice University’s Baker Institute. “It seems to me that you have to be a real optimist to think this is going to get cleared up in the next three or four months.”