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Risks to US Supply Chains Heighten as Coronavirus Hits Japan, South Korea

The coronavirus outbreak presents a growing risk to American supply chains as it spreads beyond its epicenter in China to countries like Japan and South Korea, where confirmed cases are piling up. While apparel isn’t immediately impacted by the virus in these Asian nations, a shortage of parts for industrial components such as machinery could affect firms that produce apparel in the U.S.

“Although China claims the top spot as the most important country for American imports [with more than $450 billion in 2019], the United States imported more than $140 billion in goods from Japan last year and nearly $80 billion from South Korea. Together, these three countries accounted for more than 25% of total American imports last year,” Jay H. Bryson, Wells Fargo’s acting chief economist, said.

Bryson’s team believes the U.S. has a sufficient stock of supply inputs on hand to act as a cushion against delays in production of China-made components over the near term. But with the spread of the health crisis to China’s Asian neighbors, the Wells Fargo economics team took a closer look at U.S. imports from all three Asian nations.

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Apparel and leather top the list with nearly 40% originating from China, and just a fraction (in the 1% range) from Japan. Textile products also saw China leading the imports list to the U.S., at just over 45%, while Japan’s share is about 2%and South Korea is in the 3% or 4% range.

Of the three countries, nearly 60% of furniture imports originate from China, but those are finished goods. In contrast, the U.S. imports more than 50% of computer and electronic products, some of which use intermediate inputs from China, Japan and South Korea. The three countries are also important suppliers of electrical equipment, plastics, fabricated metal products and machinery, among other categories.

“As producers inevitably draw down inventories, however, they will become more at risk to supply chain bottlenecks as a result of the virus,” Bryson said.

As the second wave of coronavirus outbreaks infect other countries, including Iran and parts of Northern Italy, concerns mount that the health crisis could mushroom into a global pandemic. While the World Health Organization has stopped short of describing the current outbreak as a pandemic, it has cautioned that the window of opportunity to contain the virus is narrowing with each passing day. And as the infections crop up in other countries, health professionals are concerned about the lack of any conclusive evidence regarding how the coronavirus, officially known as COVID-19, is transmitted.

Those concerns are also causing stock market jitters as investors fear a prolonged global slowdown. On Monday, the Dow Jones Industrial Average ended the day’s trading session down 1,031.61 points, or 3.6%, to close at 27,960.80. That decline, the worst in two years, essentially erased the gains made so far in 2020. The last big drop was on Feb. 5, 2018, when the Dow plummeted 1,175 points. The VIX, or CBOE Volatility Index, which is considered the go-to measure for fear on Wall Street, spiked up nearly 8 points, or 46.6%, to 25.03.

Editor’s Note: This story was reported by FN sister magazine Sourcing Journal. For more, visit Sourcingjournal.com.

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