You may have missed it in all the coverage of the Ukrainian war, but China has 30 million people on lockdown and just locked down Shenzhen due to their COVID-19 outbreak. Shenzhen is best described as the Chinese equivalent of Silicon Valley, but with far more manufacturing. Foxconn, the folks best known for building the iPhone but who also build many more consumer electronic devices, are among those companies who have had to shut down their factories in the area.
As the country exceeds 5,000 cases per day, the lockdowns grow. I expect China will have to lock down ports soon. Nothing in and nothing out may give our port some time to catch up on the backlog of ships. However, it will also cause much greater supply chain problems in the future. We’ve learned the hard way that stopping and restarting something as complex as the global supply chain does not go smoothly. All the issues we dealt with the first time, when a product could not be built because a single component was missing, will recur. Many items assembled in the U.S. rely on parts from China. If they don’t arrive, nothing gets built. Expect the supply chain crisis to get worse this summer and remain bad for another two years.
China’s Zero COVID Goal Backfires
China’s zero tolerance policy towards cases of COVID-19 meant they cracked down on any neighborhood where a case popped up. While the U.S., Europe, India and Russia were fighting various waves and different versions of COVID-19, China was fumigating streets, quarantining travelers and locking down entire cities. Because we had 80 million reported cases and an aggressive vaccination program, the U.S. has a high level of immunity. China has almost no natural immunity, and the efficacy of their vaccine is even more questionable than ours.
As a result, China is locking down right when the rest of the world is finally firing on all cylinders, or would be if it wasn’t for the Russian invasion of Ukraine.
The combination of these two events means we will be stuck dealing with supply chain disruptions caused not by one global catastrophe, but by two. At a time when Russia and Ukraine are finding it difficult to export anything, China is locking down the most productive parts of its economy.
Hastening the Collapse
This is how the collapse begins. Small problems pile up, but they are manageable. Then a big problem occurs. We make it through it with difficulty and sacrifice. Then we get hit by a second, but we persevere. Then we get hit with multiple problems, big and small, at the same time. The difficulties pile up, and we struggle. Each problem cuts away at the safety cushion until it is gone. We find ourselves teetering like a wooden Jenga tower, our solid foundation gone, when one more problem hits us and the whole thing collapses.
As I said a few days ago, as bad as it gets here, it will be worse in Europe and other parts of the world. You think the pictures out of the Ukraine are bad? Wait six months. See what the globe throws at us next. I can guarantee you it won’t be pretty
I’ll let you decide at what stage we are in this story. It may be different for each family. Some of you may have plenty of safety cushion remaining, but it may be getting pretty thin for others. I think we can all see the drain, and our life raft is spinning faster and faster as we head down towards it.