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The Coronavirus: A New Risk of Trade The Coronavirus: A New Risk of Trade
by Prof. Michael R. Czinkota
2020-02-11 09:29:25
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Over the past three generations, analyses of trade have indicated that speed of innovation and change is supportive of improved living standards. Growth of a country’s international trade has typically been more rapid than growth of the domestic economy. 

vir01_400There is strong historic support for the benefit of speed. The Roman empire’s impact on thought and development can still be felt today. Its territories were expanded less through armed conflicts, but rather through the speed and improvements offered to its international collaborators. The Pax Romana insured that merchants could travel safely on the roads that were built, maintained, and protected by Roman legions. The common coinage facilitated the speed of business transactions throughout the empire. Central market locations through the foundation of cities and excellent communication systems enabled the development and distribution of innovations. 

But conditions change. On February 2, the U.S. State Department placed China on a travel advisory of ‘Level 4: Do Not Travel’ due to the novel coronavirus (2019-nCoV) outbreak. As of February 6, the death toll from the virus is at least 565, surpassing the 349 people who died from the severe acute respiratory syndrome (SARS) in 2002 and 2003. 

Not only does it matter how quickly something can be provided to a specific location. There also needs to be control of the speed of distribution combined with the capability to plan for the “what if” question in case a disruption of shipment is required. 

We need to discover and systematically assess the weaknesses of globalization and highlight the consequences of dependence. It is vital for the formulation of strategic visions to understand the need and capacity for disruption.

In the 1970s, Professor Bernard LaLonde of The Ohio State University expanded his analysis of inventory carrying cost to include the expense of capital tied up in the storage of goods. With interest rates of 17 percent and higher during the Carter presidency, his innovative assessment of expense and risk changed corporate inventory management substantially.  

The speed of Chinese viral contamination sends us a risk signal for trade. We discover that rapid propagation does not just work for incoming and outgoing goods and services. Just as there has been substantial growth in health care tourism, where patients obtain lower cost medical services abroad, the expansion of viral infection can be hard to contain. 

In an era in which the United States refocuses mainly on internal priorities, China clearly demonstrates its willingness to intervene around the globe. One major activity consists of its Belt and Road Initiative (BRI), designed to link regions together with each other. Improvements of transportations and infrastructure can greatly enhance long-term change in Chinese competitiveness. It can set China apart for centuries and can be equivalent to the European building of enormous cathedrals, far larger than required by the population at the time but affirming the strength of churches for centuries. When it comes to Chinese logistics and speed, the most visible linkage is the Hong Kong – Zhuhai – Macao Bridge which reduces transportation time from four hours to 45 minutes according to the South China Morning Post. But one also must plan for management of disruption in emergencies.

The U.S. should encourage an investment boom focused on new infrastructure and transportation linkages. Such innovations must consider simultaneously both their speed and risk effects. The time may have come to add both speed of supply as well as the braking power of distribution.

Rapid distribution outwards and inwards can be deteriorating and distracting. The coronavirus outbreak is our wakeup call to be alert, not just to the benefits but also the risks encountered in outflows and inflows of services, ideas, thoughts, and goods. The virus might be the Notre Dame bell ringing while the fire has begun. 

 

Professor Michael Czinkota teaches international marketing and business at Georgetown University. His most recent book is In Search for the Soul of International Business, 2019. He served as Deputy Assistant Secretary in the U.S. Department of Commerce in the Reagan and Bush Administrations.

 


     
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