Coronavirus Impact on Supply Chains Illustrates Our Dependency on Chinese Production

The coronavirus has exposed America and the world’s dependency on Chinese exports that are turned into final products in the home country. This is especially true for American steelmakers and pharmaceutical companies.

One of the first tariffs that President Trump placed on products was on imported steel. Since China has long been the dominant steel producer in the world, its products suffered the most. It’s now ironic that the raw materials that go into making steel also are imported from China. China provides 97% of the steelmaking ingredient manganese metal that strengthens steel as well as a huge portion of silicon, another key ingredient in steel making.

The good news is that there may be enough of these minerals to fully supply American production. The bad news is that because of the virus, demand will be reduced for the products they go into such as passenger cars in the U.S and China. The automotive industry accounts for 12% of all steel demand but during the first 16 days of February as the virus took hold Chinese vehicle sales fell by 92%.

Take a look inside your medicine cabinet and you are apt to find most of your pharmaceutical ingredients can be traced back to China that are then processed into pills and capsules in India. India supplies 40% of the generic drugs consumed in the U.S. The virus has shut down most of the ingredient supply and that includes a key active ingredient in Tylenol.

This has U.S. consumers worrying about the availability of the drugs they depend on to maintain their health. And when they can find their drug, it may cost more than 40% the normal price as supply and demand determines the price. Also, since China is the largest exporter of chemicals that go into making antibiotics, there would be growing concern in the U.S. if the disruptions in China persist into mid-year.

As these two examples illustrate, the coronavirus is more than a public health issue, it has ramifications to our economy and national security. Having a global supply chain that is overly dependent on one country — in this case China — is putting our economy in danger.

American companies must recognize they must diversify their supply chains to other locations, so that we will not be overly dependent on China or any other nation. The wise thing to do is create multiple sources of supply to assure no single source is too impactful on our economy.

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Interactive map: Global trade. Some of those colorful dots represent steel inputs and pharmaceuticals.

Image Credit: IndustryWeek