The novel coronavirus has now infected more than 4.5 million people in 213 countries around the world and resulted in more than 300 thousand deaths, making it the most extensive and catastrophic global health crisis of the twenty-first century .
Beyond the toll of human life, the COVID-19 pandemic has impacted nearly every aspect of our lives and has brought both our local and global economies to their knees. Closed borders, government shutdowns, and travel restrictions have resulted in millions of lost jobs and a near-complete halt in manufacturing in many industries.
As countries have turned inward to deal with their own outbreaks, global trade has taken a significant hit. In the first few months of 2020, the amount of imports and exports going in and out of nearly every country around the world has been drastically reduced.
In a country that relies so heavily on international trade, this sudden drop in imported goods has left many people wondering: will the decrease of foreign-manufactured goods and commodities result in higher prices for Americans?
As the uncertainty surrounding the virus continues to challenge our ability to make informed and conclusive decisions, and the economic fallout of this pandemic continues to permeate American life, I believe the answer is an unequivocal yes.
China-US Trade by Numbers
As you peruse the shelves of your local department store, it doesn’t take long to figure out that China is the United States’ largest trading partner. Chinese goods account for more than eighteen percent of US imports, which, in 2019, equated to 452.2 billion dollars .
A large portion of Chinese exports are manufactured products made for US companies, primarily in the form of electrical, computer, optical, and medical equipment. They are also a major exporter of low-cost apparel, fabrics, and textiles .
Yes, the US imports goods from other countries too, like Canada, Mexico, and Germany, but our enthusiasm and reliance on cheaply-made products from China cannot be understated.
How Does a Product Get from China to America?
Before I get into how the COVID-19 pandemic has impacted trade between China and the United States, it’s first important to understand the lengthy process that involves getting a product from a factory in China to the shelf at your local shop.
There are many steps involved in the process, and a product has to pass through many hands before it finally reaches yours.
First, the raw materials needed to make the desired product have to be acquired. In many cases, these raw materials are sourced locally, but may also be sourced from other countries. Once those materials are received at the manufacturing plant, the product is assembled.
The manufacturer (aka- the seller), then loads the product onto a truck or some other form of transportation to be taken to the first carrier, usually at a trading port, where it is stored until it is time to be shipped. The next step is to load the products on board the ship, which carries it across the ocean to the buyer’s port in the United States.
The product then has to be unloaded and subsequently reloaded onto another form of land transportation, where it is delivered to its intended buyer .
Each stage of this process represents thousands of jobs and millions of dollars, and when this chain of events is disrupted, the repercussions are palpable.
A Series of Unfortunate Events
The COVID-19 pandemic not only disrupted this supply chain, but brought it to a near-complete halt, and shutdowns on both the supply end (China) and the demand end (US) have ultimately led to the growing number at the bottom of your purchase receipts.
Back in January, just as China was about to shut down briefly for its annual lunar new year celebrations, the novel coronavirus outbreak hit in a major way. Instead of returning to work after the holiday, the country was forced to close its borders and go into lockdown, forcing manufacturing plants and businesses to drastically reduce operations, if not stop them altogether.
At this point, the US demand for Chinese goods was still there, but the supply simply was not. Six weeks later, when China was finally beginning to ramp up production, the pandemic hit the US.
Now, the tables have turned. The supply is there, but with reduced activity at ports, a decreased workforce available to load, unload, and deliver goods, and significantly fewer retailers around the country open for business and therefore accepting product. The demand is missing.
On top of that, job loss and economic uncertainty have caused Americans to close their wallets. We are venturing out to buy essentials and virtually nothing else.
This discrepancy between supply and demand has translated into higher prices for American consumers, a result that will likely be here to stay for the foreseeable future. But why exactly has this decrease in imports made goods more expensive for us? The answer lies in basic economics.
The United States (and most other developed nations around the world) is a service-based economy that lives and dies by one thing: consumer confidence. In fact, consumer spending represents about seventy percent of the US gross domestic product (GDP).
Economists have developed what is known as the Consumer Confidence Index (CCI) to measure the degree of optimism that consumers feel about the state of their country’s economy, as well as their own personal finances, and predict future trends .
When consumer confidence is high, people are spending money, and the economy thrives. When it is low, and consumers hold onto their paychecks, the economy slows down.
As more and more businesses close (some permanently), and millions of Americans lose their jobs as a result of the COVID-19 pandemic, consumer confidence has tanked. To make things worse, the uncertainty surrounding the virus has made even the businesses that are still open and the people who are still lucky enough to have jobs hold onto their wallets, out of fear that a job that is here today may not be here tomorrow.
All of this has resulted in a major decrease in consumer demand, and with less people purchasing products, manufacturers are forced to increase prices in order to make a profit, or in some cases simply to break even.
Additionally, with less infrastructure in place to receive goods at international ports, the supply of products to local retailers has been drastically reduced, resulting in shortages around the country. When supply is low, prices go up, because the demand on a per-item basis is higher.
The COVID-19 pandemic has affected both supply and demand in a major way, and the results are reflected at the bottom of our receipts.
Even as the US government begins to make moves to restart the American economy, consumer confidence will likely remain low for a long time. As experts warn of the potential for a second wave of the virus, many businesses, corporations, and manufacturers will be hesitant to rehire their entire workforce, out of fear that they may have to shut down again, and lay off their employees for a second time.
This is particularly true for shipping companies who deliver commodities back and forth, because the cost to put ships back in the ocean, only to have to remove them again, outweighs the potential benefits of running at full capacity for a couple of months.
The Food Supply Chain in America
Nowhere has this supply chain disruption been felt more acutely than in the food industry. Restaurants, businesses, and schools, which represent a large percentage of food sales in the United States, have remained closed, leaving farmers around the country without buyers for their products.
The demand for foodstuffs has shifted almost completely to grocery stores and food retailers, but this increase in demand has not-and will not- make up for what was lost. In a harried attempt to adjust to this change, distributors have been doing backflips trying to manage the logistical nightmare involved in redirecting products to meet demand.
Retailers, who tend to operate on a just-as-needed basis to manage inventory, don’t have the storage capacity to receive the increase in product, so the result is empty grocery store shelves and farmers who are forced to destroy their harvest.
The Dairy Farmers of America Estimates that farmers are dumping approximately 3.7 million gallons of milk each day. A single chicken processor is destroying as much as 750 thousand unhatched eggs on a weekly basis, a farmer in Idaho has dug massive trenches to bury one million pounds of onions, and farmers in South Florida are plowing ripe vegetables back into the soil .
Processing plants, which are an integral part of the meat industry, are reducing their workforce, if not closing completely. Without any buyers for their animals, farmers are being forced to euthanize large portions of their herds because they can’t afford to keep them .
All of this is happening while US citizens are lining up at food banks, unable to afford groceries for their families.
What Will the Future Look Like?
This is the question that economists, health experts, and governments have been trying to answer since this pandemic began. It is difficult to answer because the virus itself is hard to predict. Initially, we all wanted to know when things will get back to normal, but as the pandemic has continued, it has become more and more apparent that what we once thought of as normal may never exist again.
One thing is certain, however, and that is that our economy won’t recover anytime soon. Despite the fact that we are trying to get things going again, the reality is that this pandemic is still going on. We haven’t even truly made it through the first wave of infections, and already we’re trying to prepare for another.
The uncertainty of what is to come is going to prevent the economy from recovering with any kind of speed. Even if manufacturers tried decreasing prices on some products to encourage consumer spending, it won’t make up for the deficits that have already occurred and will continue to occur. Are we headed for another Great Depression? Likely not- enough changes have been made to make our supply chains self-correcting that they will eventually even out, but this, as I said, requires consumer confidence, and the situation is going to get worse before it gets better.
This pandemic has exposed the weaknesses in our economy in a truly painful way, and it has taken a global health crisis for us to realize that perhaps we need to make a shift to greater self-sustainability if we want to rebuild an economy that can withstand a storm without completely crumbling.
Time to Prioritize and Reduce Consumption
As millions of Americans continue to be out of work, and prices continue to rise, now is a good time to prioritize what’s important and look for ways to reduce your overall consumption. This is a pretty simple thing to do when it comes to less necessary purchases, like clothing or electronics- you just don’t buy them. But there are also ways you can save on essentials, like groceries.
First of all, if you normally do all of your shopping in one place, it may pay to shop around. Check out the prices at some of your local budget retailers, whose private brands allow them to save on advertising costs which translates into a lower price for you.
Now is also a great time to shop local. The weather is warming up, and local farmers, who are less affected by shortages, may be able to offer their products at a more stable price. Doing this also allows you to support your local economy, and directly helps that farmer feed his or her own family.
At the grocery store, consider buying more frozen products. Meat, poultry, and egg prices are increasing, but the cost of frozen varieties have remained much more stable. Additionally, if you are one who often buys prepared foods, now is a good time to switch to buying ingredients and making a dish from scratch. As most of us are forced to stay home, we have more time on our hands to spend in the kitchen, and buying ingredients is much cheaper than buying an already-prepared meal .
To avoid food waste, consider preserving your food so that it lasts longer. Common methods of food preservation, including freezing, fermenting, canning, curing and drying. It may sound intimidating at first but they are actually quite simple. Many people around the country are taking this down-time to learn a new skill, so why not use this opportunity to learn your grandmother’s pickle recipe, and save yourself some money?
The future is uncertain, and the effects of this pandemic are likely going to be felt long after the days of virtual birthday parties become a distant memory, but we can only hope that the struggles we have faced during this crisis will result in positive change for the future. A future in which we build an economy that serves every citizen- not just the privileged few. A future in which everyone has access to their basic needs, we have measures in place to protect the vulnerable people in our communities, and we are more resilient in times of crisis.
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