Take 5: The Economic Impact of the Coronavirus

The Wharton Global Youth Program that runs the Knowledge@Wharton High School online business journal and programs for pre-college students, is experiencing fallout from the coronavirus outbreak that emerged in China in December and has brought the world’s second-largest economy to its knees. In the past two weeks, for example, our Global Youth team has traveled to Brazil and India for the Region 4 and Region 2 Finals of the annual KWHS Investment Competition. But due to the virus, we have have had to scramble to reorganize the Region 1 Final, held each March at the Penn Wharton China Center in Beijing. We now plan to hold the competition entirely online in the next few weeks.

Meanwhile, the participating high school students in China are literally on lockdown. We reached out to a few of them to see how they were doing. “I live right in Wuhan (where the outbreak started), so currently I have been staying at home for over one month without any outings,” says Yangyang Li, leader of one of the Region 1 top 12 investment competition teams from WHBC of Wuhan Foreign Language School. “My father is a doctor who was sent to manage the patients infected by the virus, and according to him the work he has undertaken in the hospital is extremely difficult…Our city remains closed, and many competitions and tests, including AMC (math), March SAT and TOEFL, have been cancelled in the last two months. Our daily life is greatly affected too, with hard-to-buy and expensive vegetables and hardly any shopping or eating out.”

Added Charles Chenxiang, leader of the Region 1 investment competition team Bitcoin from the Shanghai Pinghe School: “Due to the virus, my high school has put off the time for students to return to school. Instead, we will be having online courses. I fully understand the situation that the country even the whole globe is facing. Stay at home and avoid all contact is everyone’s duty and should be strictly obeyed.”

While 99% of coronavirus cases are currently in China, the outbreak is starting to spread, sparking great volatility this week in the stock market. We turned to our sister publication, Knowledge@Wharton, for some Wharton analysis about how the coronavirus – named COVID 19 — is impacting the world economy. Here are five quick insights from Wharton professors:

  • “This has many economic implications,” says Wharton management professor Mauro Guillen. “It has implications not just for China but for the entire world. The world depends on Chinese growth,” he says, citing both the country’s supply-chain role and consumer buying power. Base ingredients for key products like aspirin, Ibuprofen and antibiotics come from China, which could impact the availability of those products in coming weeks.
  • “The long-term repercussion quite apart from whatever happens now is that we’ve got a source of risk we hadn’t thought about,” says Marshall W. Meyer, a Wharton management professor emeritus who consults in China. “My view is there is going to be a big adjustment of global trade patterns unless we are really lucky and [the virus] goes away very quickly.”
  • Will the coronavirus cause companies to look at China differently in the future? “They are very likely to do so,” says Howard Kunreuther, co-director of Wharton’s Risk Management and Decision Processes Center and professor emeritus in the operations, information and decisions department. In research with Wharton professor Michael Useem for their recent book Mastering Catastrophic Risk: How Companies Cope with Disruption, the authors contacted chief risk officers and leading executives at more than 100 S&P 500 firms on the most adverse risks they had faced in recent years. “Every one of them said we are now paying much closer attention to the potential consequences of catastrophic risks than in previous years because they are happening more frequently: the 9/11 terrorist attacks, the 2008-2009 financial crisis, the 2011 Japan trifecta (earthquake, tsunami and nuclear accident) and more intense natural disasters. Firms are now engaging in enterprise risk management to reduce the likelihood and consequences of future adverse events that will affect their operations and are asking questions, such as how safe is it for us to operate here?”
  • Is there something the U.S. can and should be doing beyond the $100 million that the U.S. government says it is prepared to spend to help China and other countries where the epidemic has spread? “It’s already daunting for China to be coping with this, but we have a trade war going on, and it would actually be in the best interest of the U.S. to stop the trade war” with China, says Guillen. “It would create a lot of goodwill and would give us a good relationship as opposed to a confrontational one…The U.S. can seek an agreement, but from a high moral ground — as in, ‘we know you are in trouble, let’s see what we can do about it.’”
  • “Many of us have been saying for years that it’s only a matter of time,” says Penn professor of medicine and infectious disease specialist Harvey Rubin, referring to the arrival of a serious epidemic or pandemic. “If we are lucky and this starts to abate and the mortality is relatively low, it’s unfortunate for the people who are sick and died, but next year or the year after something else could happen. The world needs to have not only medicine and health care infrastructure but also economic and information infrastructure. If there is some message here, it’s that this is totally predictable.”

Conversation Starters

How does the concept of risk factor into the economic discussion of the coronavirus?

Professor Mauro Guillen says, "It would actually be in the best interest of the U.S. to stop the trade war” with China. Do you agree? Why or why not?

Have you been impacted by the coronavirus? Share your story in the Comment section of this article.

8 thoughts on “Take 5: The Economic Impact of the Coronavirus

  1. In my small town the virus was never a serious problem until recently. Our towns around us have all freaked out and bought everything in the store. Our schools are getting let out this week. It’s unreal how much a virus has impacted the world and scared everyone.

    1. So true, Jolene! It is a world turned upside down! What will you remember most about this time? People are posting some very funny videos and memes to pass the time at home. Keep us posted on the ways you’re staying engaged in school work and learning while you’re out of school, even if you’re just taking hikes every day. I discovered a pair of Cooper’s Hawks making a nest this morning in our yard. Never would have seen all that activity if I was on the train to work! Stay well and keep on posting. Our Comment & Win contest starts Friday. https://kwhs.wharton.upenn.edu/competitions/kwhs-contest-comment-win/

  2. During these unprecedented times, my community in Dallas, TX has been turned upside down. Schools are transitioning to distance learning plans (online school), restaurants only offer take-out or delivery options, toilet paper is out of stock at all major grocery stores, and constant worry has altered our everyday lives. However, this has all happened in the last week. For others around the world, especially the high school students in China mentioned in the article, this has been their new “normal” for months. It amazes me how this article, which was written over three weeks ago, seems out of date. With the fast spread of this virus, there is a constant flood of new information, recommendations, cases, and deaths.

    Just the other night at dinner, my family and I were talking about the amount of people with COVID 19 in Texas, which at that time was around 20 cases. Now, there are 236 people infected (according to The New York Times). Even though more officials are encouraging social distancing, it seems that some people do not take this seriously. This frustrates me because they must not see the impact that they have on helping to spread this virus.

    It is hard to imagine what life will be like when all of this is over. I know that we will never be able to return to how our daily lives used to be. The negative impact of this virus on businesses, both small and large, is unimaginable.

  3. The virus is just know coming to my city and it’s affecting us slowly bite surely. Our city goes on lock down Thursday the 26 and btw I live in Charlotte. Many things are getting shut down people are out of work and having to stay home . I work also but my job still open we are just very strict On some things. I can’t wait for all this to be over so we can enjoy our daily lives even more than we use to

  4. Our society is currently facing the miserable situation of the propagation of COVID-19. This situation has affected many factors of our daily life. For example, it has created a negative impact to the economic market, industries, or businesses. Additionally, this has changed our social lives. I live in Puerto Rico, and due to the transmission of the virus, we are currently on lockdown. Schools, universities, and many businesses are closed; but in order to keep up with the academics, my school is using the distance learning program (online classes). Overall, it’s hard to believe the situation that we are facing and the impact it has caused to our community. In order to enhance our health and go back to normality, we must remain calm and have a positive mind that this will eventually get better.

  5. Universal fear of the coronavirus, hypothetically analogous to the positive effects of nationalism throughout world history, not only tore away the roots which connected society, but also created an unthawable mutual distrust between people. Instead of unifying the affected nations, racism arose and pushed the age-old “they started it” game back into play. Slipping out a small achoo leads to immediate expressions of disgust and segregation from the people around you, and although the acts of distancing from all potential contaminants are absolutely necessary, the degrading attitudes need to go. In correspondence with the economic recession mentioned above, the gold “Made in China” stickers no longer wear their gold medal as customers shy away from these products. My grandparents reside a few provinces southeast of Wuhan and have already received slips to buy a rationed sum of groceries at the sole standing grocery store in their neighborhood with strict bans on talking. The center square famous for senior dances, blasted traditional Chinese music that can be heard blocks away, mahjong games, rowdy matchmaking services, and loud bargaining with street-side vendors has turned into nothing but a vacant plot of land. The health concerns are highly alarming, but we seem to have forgotten about the core of our personal ethics and the looming pitfall of self-esteem and mutual trust because we truly are all in this together.

  6. The effects of the coronavirus have been very unprecedented. This article was written weeks before the outbreak began to occur in the US. Now, many schools are shut down and many states are on lockdown. It’s primarily because of the globalization of our world, which is something that we can’t reverse.

    Though I think in the short term, countries and people will be more distrusting and angry at each other because of the virus, I have hope that after the pandemic ends, or during, we will be able to unite with each other and share resources to stop the spread of the coronavirus. Personally, I have not enjoyed being quarantined. It’s not a fun experience at all because of the limited social interaction. However, that means that I have more time to spend with my family and more time to explore new things. Many businesses and schools have done a great favor for students like me by providing free access to online resources. It’s great to see how everyone is doing their part to help others. I also think it’s important for people to have optimism for the future. Sure, the virus is a huge rain cloud over our heads at the moment. But in the same way, we are all facing the same problems which means we can try to work together to find a solution.

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