Introduction
Richard Baldwin and Beatrice Weder di Mauroprovince. Hubei is also the location of highly advanced microchip-fabrication factories
(these make the flash memory chips used, for example, in smartphones). The Economist
cites analysts who conjecture that the epidemic in Hubei alone could knock 10% off
worldwide shipments of smartphones.^17
The automobile sector, especially in East Asia, is already significantly disrupted by
ruptures in international supply chains. For example, a shortage of parts coming from
China has forced Korean carmaker Hyundai to shut all its car plants in Korea. The
Japanese firm Nissan closed a factory in Japan temporarily. The shock has even reached
Europe. Fiat-Chrysler has recently warned that it could soon halt production at one of
its European factories. Jaguar Land Rover, a UK-based auto company, announced it
might to run out of parts from the end of February. To stave this off, it had flown in
emergency supplies from China in suitcases.^18
By contrast, in so far as COVID-19 is a demand shock, imports will fall, and they will
fall most in the trade partners of the nations that are most severely hit. Given that the
hardest-hit nations account for such a large share of world demand, this mechanism of
contagion is likely to be important. And it is likely to be amplified by the wait-and-see
mechanisms discussed above.
Commodity trade and prices
Since the beginning of the crisis, Brent oil prices have dropped from about $69 to about
$50 per barrel. This is a large negative shock for oil-producing countries in particular
in the Middle East, as Arezki and Nguyen argue in their chapter in this eBook. On the
other hand, declining oil prices may provide some relief, for instance for the transport
industry. Extrapolating the SARS pattern of impact on air travel, IATA estimates that
the aviation industry could face a loss of $29 billion in passenger revenues, which
would be partly mitigate by lower fuel costs.^19
17 https://www.economist.com/international/2020/02/15/the-new-coronavirus-could-have-a-lasting-impact-on-global-
supply-chains
18 https://www.economist.com/finance-and-economics/2020/02/22/covid-19-presents-economic-policymakers-with-a-
new-sort-of-threat?cid1=cust/ednew/n/bl/n/2020/02/29n/owned/n/n/nwl/n/n/E/415278/n
19 https://www.iata.org/en/iata-repository/publications/economic-reports/coronavirus-initial-impact-assessment/