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Quarantines would hurt Oregon's economy, but the expanding virus could also hurt state's largest export market: China.

COURTESY: UNITED PACIFIC IMPORTS - Easter baskets from China made it here on time because they were already on ship when coronvirus struck over Chinese new year. Other consumer goods may be delayed.

The emergence of the new, or novel, coronavirus could put a damper on the unprecedented expansion of the Oregon economy.

PMG

A full-blown recession could be on the horizon if the virus disrupts supply chains, keeps workers from their jobs and causes businesses to pull back investment, economists say.

In a recent forecast, state economist Josh Lehner wrote that Oregon's economy is in good shape with historically low unemployment, low interest rates, accompanied by high business and consumer confidence.

But he said the coronavirus could be the healthy economy's undoing.

He referenced research by the Brookings Institution on the economic impact of the 2002 outbreak of severe acute respiratory syndrome — known as SARS — which began in Asia and spread to 26 countries. According to the Washington, D.C., think tank, the outbreak of SARS took 1 percentage point off China's gross domestic product while having even less of an impact in the United States.

China, where the 2019 coronavirus outbreak began, has since become the world's second-largest economy, and the products of its factories are integrated into supply chains across the globe.

Lehner wrote that China is Oregon's largest foreign market for exports, accounting for up to 20% to 30% of totals. China has shuttered factories and restricted travel to contain the virus. A prolonged shutdown in China likely would hurt Oregon's export market, Lehner wrote.

"Fears over the human and economic impact could potentially reach critical mass where consumers pull back and delay spending money and employers put off investment and hiring decisions," he wrote.

In a follow-up email, Lehner said that a downturn could mean adjustments to the state economic forecast, which could have budget implications. He said that local quarantines and public restrictions would have the most significant economic disruptions.

Both Nike and Columbia Sportwear deep-cleaned their Washington County campuses last weekend in a bid to kill any germs brought in by their globe-trotting staffs.

PMG FILE PHOTO - Fields throughout the Chehalem Valley reflect Oregon's agriculture industry, which could be affected by a prolonged coronavirus scare.

Year of the Rat

Min Yu is an Associate Professor of Operations and Technology Management at the University of Portland's Pamplin School of Business Administration (Robert Pamplin also owns the Business Tribune).

Yu says supply chains in high tech, fashion and pharmaceuticals will all be affected by the shut down of factories in China because of COVID-19 and the accompanying panic.

Dr. Yu is currently on sabbatical researching sustainable supply chains, but says the coronavirus is inspiring people in business and academia to try and design a resilient supply chain.

"All global supply chains will be affected if they have parts or ingredients from China.

Now it will be even worse because we have outbreaks in other countries."

COURTESY: UNIVERSITY OF PORTLAND - Min Yu, Associate Professor of Operations and Technology Management at the University of Portland's Pamplin School of Business Administration. Yu says the race is on now to design supply chains that are resilient to sudden shutdowns casued by global panics.

Yu is from China and is aware that most of China, outside the Wuhan area, is trying to get back to normal already. The fact that the coronavirus hit during Chinese New Year was lucky, in a way, since factories were already prepared for a week or two of lost production, and had stored up inventory. Now they just have to stretch it to two months. Many students in China are working from home, and schools are trying to use online courses and shared documents.

The need for many products will drop as consumers are forced to stay home. Demand for hand sanitizer and masks may spike, but that doesn't mean factories can necessarily produce them if their staff is forced to stay home.

She expects drugs to start running short soon.

"All this creates a fluctuation in demand, which is tough to manage.

Intel could feel impacts

In the meantime, Oregon is likely to be affected by what it's not sending overseas. Oregon exported $4.7 billion worth of goods to China in 2018, according to the Office of the U.S. Trade Representative. The state's largest manufacturing export is computer and electronic products, which accounted for $7.5 billion or exports. Machinery was next at $4 billion.

COURTESY PHOTO: INTEL CORP. - Intel Corp.'s Oregon microchip plants could be affected by the coronavirus.

Sixty-five percent of Oregon's exports to China are classed as high tech.

Robert Whelan, a senior economist at consulting firm ECONorthwest, said that Oregon's largest export is semiconductors, used to manufacture circuit boards, which are exported to China, as well as South Korea and Malaysia. Intel Corp., a manufacturer of semiconductors and Oregon's largest private employer, could be particularly affected.

PMG FILE PHOTO - Tourism in Portland and other parts of the state could be hurt by the coronavirus.

Whelan said that manufactured products use parts from all over the world. He said that if a company in Asia, for instance, couldn't get a component needed for a product because of the coronavirus outbreak, he said that it would delay buying semiconductors or other goods from companies in Oregon.

Agriculture is another large export commodity for Oregon. The state shipped $1.9 billion worth of agricultural goods in 2017, according to federal figures. Whelan said that wheat makes up a large portion of those exports and he's not as concerned about a hit to Oregon farmers. "That's probably less affected because everyone has to eat, sick or not," he said.

However, he said that tourism is more likely to be affected and will hurt Portland, a destination for affluent Chinese. Lehner wrote in his forecast that Chinese tourists spent $261 million in Oregon in 2018.

Nike closes China stores

It's uncertain how badly the coronavirus will affect the economy. The stock market saw its worst week since the 2008 financial crisis. The Organization for Economic Cooperation and Development predicted that the outbreak could reduce global growth by 1.5%.

Nike, the Washington County sneaker giant, already has had to close stores in China in response to the outbreak, which could cut into its profits.

But Scott DuHadway, the Cameron professor of supply chain management at Portland State University, said that Oregon is not likely to see similar disruptions soon.

He said it'll take time for disruptions in supply chains to spread. Companies that rely on manufacturing, which requires workers to show up at factories and work in close proximity, are more likely to be affected — particularly those dependent on low-cost manufacturing from China. He said that these disruptions would cascade to the broader economy.

Gail Krumenauer, a spokeswoman for the Oregon Employment Department, said that employment data for January to be released this week wouldn't reflect any impact from the outbreak, but the department is paying close attention.

Whelan said that the exact economic effects of the outbreak wouldn't be apparent until after it's happened. "Data and numbers are always old," he said.

COURTESY: LAURA WATSON - United Pacific Imports' Laura Watson was more affected by Trump tarrifs on her the easter baskets she imports form China to the US than by the coronavirus slowdown. Because no one is flying to Asia she will however have to make multiple trips to see her supermarket buyers in the US. They won't be gathering in Hong Kong for 10 days as they usually do.

EASTER BASKET CASE STUDY

Laura Watson, owner of United Pacific Imports, sources bamboo baskets in China for the Easter basket market in the US. "I've actually been more affected by tariffs than the coronavirus," she told the Business Tribune. In 2016 the duty was 10 cents bringing a one-dollar basket into the US from China. Now with the tariff it costs $1.40. Retailers, such as large supermarket chains, asked her eat that cost the first year. This year she will not so they are passing it on to consumers. Watson must source smaller, less expensive baskets. "It's like 2007 and food. Prices don't go up, packaging goes down."

However, the coronavirus hit at a lucky time for her, December and Chinese New Year. "The product was already on the water." If it had hit in the fall when the factories are making baskets, she would have been scrambling to source them from the Philippines and Thailand. Production should return to normal soon, as she knows the bosses in her factories in China are currently screening people's health to get them back to work.

COURTESY: UNITED PACIFIC IMPORTS - Easter baskets like this one were already on ships before the coronavirus outbreak shut down production in and shipping from China. Other consumer goods caught up in the economic squeeze could rise in price as they get scarce in coming months.

One big hit however has been travel. Instead of meeting all her US buyers in Hong Kong over a 10-day period, because they are not travelling to Asia she has to fly around the US to ten different meetings over a month. Aside from the expense it's doable for her. "But what about people who have families they can't leave?"

She predicts the coronavirus effect on supply chain will show up in about a month, not so much as bare shelves as higher prices. "There's a surplus of inventory in this world. Think how fast you can get any product from Amazon."

Watson is not panicking about a pandemic. "A plane is like a flying petri dish anyway, but wash your hands and you'll be OK."

Joseph Gallivan contributed to this story:

Twitter: @PortlandBizTrib


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