Global manufacturers are bracing for another cycle of chronic supply chain crises, as China imposed a new COVID zero-tolerance policy to keep the omicron variant away.
China is the home to one-third of global manufacturing; a lockdown there would have severe consequences for businesses worldwide.
Chinese lockdown threatens another global supply chain crisis
The newly introduced policy of China already confined millions of people to their places in major Chinese cities; many airplanes have been grounded for the next month.
Roughly 20 million people in the Chinese population are currently under lockdown, which is impacting the city of Xi’an and the Henan province.
Reportedly, this wave of crisis can bring many countries to their knees, as the world is already struggling with surging prices for many basic commodities; the workers’ shortage is making the matter worse.
To the extent that there has been a supply chain crisis, it’s mainly related to the international shipping of finished goods to consumer end-markets, and semiconductors — one product in which China notably underperforms https://t.co/LFZZDYCmtr
— Bloomberg Opinion (@bopinion) January 16, 2022
When the virus first emerged in Wuhan, China used a combination of lockdowns, quarantine, and contact tracing to counter the pandemic.
While this strategy was effective in controlling the virus in the country, omicron’s higher transmissibility creates new challenges for the country with the highest population in the world.
By now, there are no significant impacts of Chinese lockdown anywhere in the world; however, the situation is likely to escalate once the backup commodities in the world are consumed.
Toyota and Volkswagen already announced they will stop manufacturing in the Chinese city of Tianjin, due to the newly introduced lockdown.
China wants to curb omicron before Beijing Olympics
Analysts are warning that Chinese action against the omicron variant can be severe; the country wants to neutralize the variant before the start of the Beijing Olympics next month, the schedule of which can be disturbed otherwise.
Beijing reported its first omicron case on Saturday.
The president of the US-China Business Council, Craig Allen, believes if China continues closing down ports, the supply chain disruption will be felt across the United States.
The whole world should hope China can at least strike a nice balance between protecting people and keeping its trains, factories and container ships running on time https://t.co/LFZZDYCmtr
— Bloomberg Opinion (@bopinion) January 16, 2022
Experts are labeling the upcoming weeks important, as Xi’an city and Henan province, which are the main target of lockdowns, do not have export-oriented economies.
However, the speed with which omicron can penetrate into the largest populated country of the world can be beyond imagination, especially at a time when Chinese vaccines have been reported as the least effective against the variant.
The chief executive of International Business Strategies, Handel Jones, stated while Samsung and Micron can get away with the lockdown, the cities like Shanghai and Tianjin can cripple the global supplies if they go into complete lockdown.
Calling the current situation a “tipping point,” Jones believes consequences in the next couple of weeks could be severe.
Lisa Williams, a CEO of a multicultural dolls manufacturing industry, stated the lockdown is a roadblock for many companies like hers, as retailers are demanding products for fall to be shipped as early as May.
Thus, she claimed during this tense situation, productivity and innovation plummeted, while prices have skyrocketed.
