Not Good: The Coronavirus Is Hurting Global Trade Badly

 In China, ASEAN, C4ISR, GDI, Defense

Already, the out­break in China has dis­rupt­ed the flow of trav­el­ers, as Beijing has banned Chinese tourists from con­duct­ing over­seas group tours, which account for 44 per­cent of the coun­try’s out­bound tourism. A sus­tained out­break could fur­ther stanch flows of Chinese trav­el­ers to South Korea and Japan, while the spread of the virus inside either coun­try would nat­u­ral­ly have a chill­ing effect on tourism over­all. 

South Korea and Japan boast widely diver­si­fied economies, yet a drop in tourism rev­enues from China (or over­all) would deal both a blow in cer­tain areas. In 2019, 7.4 mil­lion Chinese tourists vis­it­ed Japan, while a fur­ther 5.5 mil­lion went to South Korea. In Japan as a whole, Chinese tourists account­ed for 30.3 per­cent of the total, spend­ing $16.2 bil­lion in 2019, or 37 per­cent of what all tourists to the coun­try spent com­bined. Japan’s Nomura Research Institute esti­mates that a dropoff on par with the 2002 – 2003 out­break of severe acquired res­pi­ra­to­ry syn­drome (SARS) could cost the coun­try’s econ­o­my $7.1 bil­lion. What’s more, Chinese tourism growth in 2019 was key in help­ing rural, tourism-depen­dent and eco­nom­i­cal­ly small­er Japanese areas offset a South Korean boy­cott stem­ming from Seoul and Tokyo’s trade stand­off. 

South Korea’s tourism sector, too, has enjoyed a greater influx of Chinese tourists, who con­tributed 34 per­cent of the total in 2019 and who account­ed for a sub­stan­tial por­tion of the esti­mat­ed $21.6 bil­lion in 2019 total tourism receipts — rev­enue that is doubly impor­tant for an export-reliant South Korean econ­o­my flag­ging in the face of global trade head­winds. As it is, Seoul knows all too well what a drop in Chinese tourist arrivals can mean for the econ­o­my: In 2017 – 2018, Beijing banned Chinese cit­i­zens from trav­el­ing to South Korea on group tours in retal­i­a­tion for Seoul’s deploy­ment of a U.S. mis­sile-defense system, cost­ing Seoul around $6.82 bil­lion in rev­enue. Beyond Chinese tourists, South Korea is par­tic­u­lar­ly wor­ried about the risk of the new coro­n­avirus spread­ing inside the coun­try given its expe­ri­ence with Middle East res­pi­ra­to­ry syn­drome (MERS) in 2015. That out­break in South Korea scared away tourists, ulti­mate­ly cost­ing the coun­try’s econ­o­my $3.6 bil­lion in losses, or 0.2 per­cent of gross domes­tic prod­uct. 

Any draw­downs in tourism rev­enue would come at a par­tic­u­lar­ly fraught time for South Korea’s econ­o­my, which is reel­ing due to drops in world­wide demand and trade ten­sions with Japan. (Over 44 per­cent of South Korea’s GDP comes from exports as com­pared to just 18.5 per­cent for Japan.) More trou­bling for Seoul, how­ev­er, is that South Korean exporters are vul­ner­a­ble to the eco­nom­ic rip­ples of an extend­ed out­break in China. Already, South Korean mar­kets have taken a hit on fears that the new coro­n­avirus could dampen Chinese con­sump­tion and roil supply chains. China accounts for nearly 24 per­cent of South Korea’s total trade, includ­ing 36 per­cent of elec­tron­ics exports, 28 per­cent of machin­ery exports and over half of organ­ic chem­i­cal exports. A virus-relat­ed Chinese slow­down would espe­cial­ly hit South Korean chip­mak­ers and dis­play man­u­fac­tur­ers hooked into Chinese pro­duc­tion chains, as well as South Korean retail­ers that sell to the Chinese market. With South Korea’s econ­o­my already suf­fer­ing in a tough global envi­ron­ment, that would be par­tic­u­lar­ly trou­bling. 

Southeast Asia is equal­ly vul­ner­a­ble to the health and eco­nom­ic effect of the virus given the large num­bers of Chinese tourists who visit the region, as well as the area’s deep links to the Chinese econ­o­my. The uneven levels of health care, mon­i­tor­ing and screen­ing capac­i­ty among these coun­tries make the sit­u­a­tion even riski­er. Thailand, Cambodia, Singapore, Malaysia and Vietnam have all con­firmed cases of new coro­n­avirus, and while Myanmar and Laos have yet to report cases, their high Chinese tourism flows — and porous, poorly con­trolled bor­ders with China — put them at risk of unde­tect­ed infec­tions. 

In the region, Thailand stands to fare the worst. Over 21 per­cent of Thailand’s GDP comes from tourism and relat­ed spend­ing, while its cities are also key des­ti­na­tions for Chinese trav­el­ers. As of Jan. 28, Thailand had 14 report­ed cases of the virus — the high­est number out­side China. Furthermore, fear of the virus could deter vital tourism from all coun­tries to Thailand. Most imme­di­ate­ly, how­ev­er, the coun­try could suffer from a long-last­ing drop in Chinese arrivals, who account­ed for 10.5 mil­lion arrivals in 2019 and $17 bil­lion in spend­ing. According to the Tourism Authority of Thailand’s esti­mates, the virus could lead to a drop of 2 mil­lion Chinese tourists in 2020 — a big blow that comes on top of the prob­lems stem­ming from a strength­en­ing baht, com­pe­ti­tion with Vietnam for tourists and a series of high-pro­file ferry acci­dents that dis­cour­aged Chinese vis­i­tors. The out­break fur­ther jeop­ar­dizes this rev­enue stream at a wor­ry­ing time for Bangkok, which is trying to prop up growth amid polit­i­cal fragili­ty, weak global demand for its elec­tron­ics and auto­mo­tive sector, as well as damp­ened domes­tic con­sump­tion. 

Vietnam, too, relies on China for a sub­stan­tial number of tourists — one-third of its total. Its econ­o­my, how­ev­er, is not overde­pen­dent on tourism, as it has been a key ben­e­fi­cia­ry of man­u­fac­tur­ers flee­ing China due to the U.S.-China trade war. But as with most Southeast Asian coun­tries, Vietnam’s deep reliance on Chinese supply chains puts it at risk of eco­nom­ic fall­out if a sus­tained out­break saps China’s eco­nom­ic growth. 

Africa and the Middle East

While Africa is far from the Chinese center of the out­break, the increased flow of Chinese nation­als to the con­ti­nent in recent years puts it at risk. Any dis­rup­tions in African economies, how­ev­er, would stem less from a sharp dropoff in Chinese arrivals or a slow­down in the Chinese econ­o­my than out­breaks in the coun­tries them­selves, par­tic­u­lar­ly as many nations lack decent health care infra­struc­ture or robust screen­ing pro­ce­dures. On Jan. 28, Ethiopia report­ed that it had quar­an­tined four stu­dents who recent­ly returned from Wuhan exhibit­ing symp­toms of the virus. Ethiopia is com­par­a­tive­ly well-posi­tioned to con­trol any out­break, but others with sig­nif­i­cant links to China are not. The virus, for instance, could spread much more quick­ly in a coun­try like Zimbabwe, which is cur­rent­ly facing a severe eco­nom­ic and food crisis. At the same time, many of Africa’s major cities, espe­cial­ly Addis Ababa, Cairo, Johannesburg and Casablanca, are all des­ti­na­tions for Chinese trav­el­ers, stu­dents and busi­ness­peo­ple.

Europe and the Americas 

In the Americas, Canada and the United States are the only coun­tries that have report­ed cases to date, and both are well-equipped to mon­i­tor and deal with the threat. Fewer Chinese trav­el­ers visit Latin America, which is also at lower risk because many flights from China to the region first go through the United States or Canada, which could pre­vent the onward travel of anyone suf­fer­ing from the virus. During the 2002 – 2003 SARS out­break, for instance, the virus spread at a sig­nif­i­cant­ly lower rate in Latin America than else­where: Brazil and Colombia each reg­is­tered just one con­firmed case, in con­trast to 250 in Canada and 75 in the United States. (The latter, mean­while, was the only coun­try in the Americas to con­firm an out­break of MERS.) Disruptions to China’s econ­o­my, how­ev­er, would still have knock-on effects for Latin American coun­tries, which con­duct­ed $307.4 bil­lion in bilat­er­al trade with China in 2019. A long-last­ing out­break would jeop­ar­dize agri­cul­tur­al and nat­ur­al resource exports, espe­cial­ly Chile, which sends over half of its vital copper exports to China, and Brazil, which relies on agri­cul­tur­al exports to China.

Elsewhere in Asia

China’s numer­ous land bor­ders in Northeast and Central Asia also put other coun­tries at risk of the virus, lead­ing Mongolia and Kazakhstan to imple­ment severe restric­tions on move­ment from China. However, most coun­tries have to bal­ance the need to pro­tect their pop­u­la­tions against the eco­nom­ic and polit­i­cal ram­i­fi­ca­tions of sev­er­ing links with China. Particularly wor­ried is North Korea, which has banned Chinese tourist arrivals and set up quar­an­tine zone at its bor­ders. While North Korea’s tight, author­i­tar­i­an system appeared to help it weath­er both the 2002 – 2003 SARS out­break and the 2015 MERS out­break, the new coro­n­avirus presents the coun­try with more of a dilem­ma, as Chinese tourists (350,000 vis­it­ed last year alone) have become a crit­i­cal source of rev­enue for the coun­try’s econ­o­my as it strug­gles under the weight of sanc­tions. Another source of danger for Pyongyang are the esti­mat­ed 50,000 North Korean work­ers in China. The labor­ers were sup­posed to return to North Korea by late last month in accor­dance with U.N. sanc­tions, but many report­ed­ly did not due to the hap­haz­ard imple­men­ta­tion of the mea­sures. Since then, how­ev­er, some may have returned home before Pyongyang imple­ment­ed quar­an­tine mea­sures, par­tic­u­lar­ly in the run-up to the Lunar New Year. 

The Upshot 

China’s coro­n­avirus out­break is a fluid, rapid­ly evolv­ing sit­u­a­tion. What hap­pens now is highly uncer­tain — and even more so for coun­tries that are trying to con­tain the spread of the virus within their own bor­ders. If China’s domes­tic response nips the virus in the bud, the number of cases could peak in the coming weeks, result­ing in a relax­ing of restric­tions within the next two months. But if the mea­sures prove inef­fec­tive and the virus spreads fur­ther — or becomes more fatal — the long period of incu­ba­tion and con­ta­gious­ness could mean cases con­tin­ue to crop up inter­na­tion­al­ly for some time to come. In such a sce­nario, author­i­ties in China and far­ther afield won’t be lift­ing restric­tions any­time soon, which would herald a dif­fi­cult year ahead for the global tourism indus­try.

Source: National Interest

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