Impact of China's 'Zero-Tolerance COVID-19 Measures' Raises Concerns Over Supply Chain Disruptions for US Companies

Experts Warn "China Faces Supply Chain Disruptions if COVID Control Fails Within Next 2-3 Weeks"

[Asia Economy Reporter Kim Heeyoon] As the Chinese government's 'zero-tolerance COVID policy' continues to curb the spread of the Omicron variant, concerns are growing among American companies about the potential worsening of supply chain disruptions.

According to a report by The New York Times (NYT) on the 16th (local time), with China re-implementing full lockdown measures amid signs of Omicron variant spread ahead of the Beijing Winter Olympics opening next month, U.S. manufacturers, who have faced supply chain issues over the past two years, are worried about factory and port shutdowns within China.

Previously, China’s zero-tolerance COVID policy led to lockdowns affecting over 20 million people, about 1.5% of the total population, centered around Xi'an in the west and Henan Province in north-central China. There have also been ongoing suspensions of flights connecting China and the world through Hong Kong.

The NYT pointed out that U.S. companies are already struggling with extended shipping times, labor shortages, and rising raw material and shipping costs, and that worsening supply chain problems could deal a severe blow.

Experts have also warned that if China intensifies its coronavirus containment efforts ahead of the Winter Olympics opening the next day, disruptions in the flow of goods could occur.

If China’s widespread lockdowns expand, they will impact supply chains across the United States. This could lead to a decline in consumer confidence and worsen inflation, which is at its highest level in 40 years, thereby placing additional burdens on the Biden administration and the Federal Reserve (Fed).

Craig Allen, president of the U.S.-China Business Council (USCBC), said, "Whether China can control COVID is a really important issue. If China starts locking down port cities, we will face further supply chain disruptions."

In response, the Biden administration has been working to alleviate domestic and international supply chain bottlenecks by investing $17 billion through the new infrastructure law to improve domestic ports, but labor shortages and truck shortages caused by COVID-19 are making it difficult to normalize the domestic supply chain.

Currently, U.S. manufacturers are closely monitoring the possibility that lockdown measures imposed on Xi'an and Henan Province could expand to factories and ports in Shanghai and Tianjin if the Omicron spread in China worsens.

The CEO of semiconductor consulting firm International Business Strategies (IBS) said, "The current impact of the lockdown is very limited, but if China fails to control COVID over the next two to three weeks, the supply chain will suffer a major blow. This is exactly a tipping point moment."