Inside INdiana Business

Coronavirus: Potential impact on Indiana manufacturing

Concerns linger on how supply chain disruptions in China could impact manufacturing in Indiana. (photo courtesy of Pixabay)

INDIANAPOLIS (Inside INdiana Business) — Even without one human case of coronavirus within Indiana’s borders, the Hoosier state could feel a deep impact from the disease as it starts to impede manufacturing, according to an IUPUC professor.

Stocks plunged last week amid escalating fears of the coronavirus’ spread and the damage it could inflict on the global economy

In this country, there’s concern about how supply chain disruptions could impact factories if they can’t get enough materials from China.

“Because manufacturing is what China does for the world, sort of the manufacturing basket of the world, and that’s the epicenter of the coronavirus. It could be that a lot of supply chains are shocked. I think that’s what markets are afraid of right now,” said Ryan Brewer, an associate professor of finance at IUPUC.

As a top manufacturing state that relies on being able to source materials from China, Indiana producers could feel the pressure.

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“What we import from China includes motor vehicle parts, pharmaceutical components and inputs, orthopedic inputs and some furniture parts,” said Brewer.

Indiana imported $7.7 billion in goods from China in 2019, making it the number two import source behind Ireland, which is a key supplier to the state’s pharmaceutical industry.

“While we do have a good, strong relationship with Ireland in terms of imports on pharmaceutical components, there might be some certain components within the pharmaceutical pipeline that we get strictly from China,” said Brewer.

If Indiana manufacturers struggle to get components, Brewer said it’s not an easy fix to find another supplier.

“The suppliers that have not been disaffected by shutdown due to the coronavirus are going to be in demand by other people who make things too and other states and other parts of the world. So, getting a new supply chain hooked up is not as easy as 1-2-3.”

But even if supplies are available, logistics is another problem. In a recent Perspectives article for Inside INdiana Business, Jefferson Clay, director of global sales for Indianapolis-based Cargo Services Inc., said imports into China are still occurring, but exports have slowed.

“As a result of the disruption to shipping, containers in the Midwest for shipping will become scarce in the near future,” said Clay.

Ball State University economist Michael Hicks believes U.S. stocks were poised to tank, even before fears of coronavirus began to spread globally.

“The world economy has been slowing for more than a year, and parts of Europe and Asia, including China, were in, or at the cusp of a recession prior to the discovery of the COVID-19 disease,” said Hicks,

As far as the supply chain, Hicks says it varies by industry and firm, but there are few manufactured products with a 120-day supply of inventory. Continued idling of Chinese factories will impact American factories and consumers in the next few weeks.

“Americans are about to learn just how important global trade is to our standard of living, and vibrant economic growth,” Hicks said. “In the long run, the effects are dominated by loss of life and long-term morbidity effects, if patients do not make a full recovery. It is too early to judge whether or not this disease will have historically large long-term effects.”

Ryan says the uncertainty of the coronavirus, its impact on the global economy and fear of the unknown could be a catalyst that propels the U.S. into a recession.

“That’s why it’s so tough because disruption of a supply chain like this can take a very long time to recover,” said Brewer.

Associate professor of finance Ryan Brewer explains how coronavirus could be a catalyst to a recession.

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