Another tech conference pullout. Fewer cargo ships calling at ports. Chinese tourists staying away.
The economic impacts of the coronavirus are starting to be felt across California, though right now they aren’t slowing the economy at large.
That could change, experts say, if the virus continues to spread.
“A lot of it depends on how this situation starts to show an end game,” said Robert Eyler, an economics professor at Sonoma State University and director of the school’s Center for Regional Economic Analysis.
If the COVID-19 virus morphs into a global pandemic, it could push the U.S. economy into recession and deliver a $1.1 trillion hit, according to Oxford Economics.
In San Francisco, the effects are already apparent. On Friday, Verizon became the latest big-name company to pull out of a major cybersecurity conference at Moscone Center next week. AT&T and IBM already said they would not attend.
San Francisco Mayor London Breed wrote a letter urging people planning to come to the RSA Conference — for which registration starts Saturday — to stay the course and not give in to “fears, rumors and misinformation.”
Other conferences have been affected: Facebook has canceled its 5,000-person marketing convention at Moscone Center next month due to virus fears, and the company pulled out of the Game Developers Conference scheduled there in mid-March.
Gov. Gavin Newsom’s Chief Economic and Business Advisor Lenny Mendonca told The Chronicle that he is “not overly concerned” about the economic impact of the virus in the short term, when it would be minimal — but it could grow if the disease continues to spread.
Mendonca says he is particularly concerned about misperceptions: “I’m as worried about people being overly concerned about it, and profiling and doing things that are not appropriate given the facts of the situation.”
Ports are bracing for a hit because closed factories in China mean fewer products are being shipped to the U.S. Port of Oakland spokesman Mike Zampa said that while the port’s January cargo volumes were strong, “there could be impacts ahead.”
Zampa said some shipping lines have canceled voyages in spring, anticipating reduced demand for space on container ships. He added in a text message that about 30 fewer ships with Asia routes will call at the Oakland port through spring. The port saw 118 total ships in January, according to Zampa. About 78% of the port’s trade was with Asia in 2018.
Major global shipping companies like Denmark’s Maersk and Germany’s Hapag-Lloyd began announcing this month they would cancel some sailings between Asia and the U.S. West Coast because of a decreased demand for cargo due to coronavirus.
Spokesman Nils Haupt of Hapag-Lloyd said by email that further service cuts may follow, “depending on the developments in China and when production there will revert to full capacity. This is impacting all major product groups sourced from China and is resulting in reduced inventory levels in the U.S. across most consumer products.”
Eyler predicted that unless the infection rate continues to rise during the next several months, supply chains between California and China should be back to normal by summer. In the meantime, high-tech manufacturing companies like Apple and Tesla relying on Chinese-made parts will continue to bear the brunt of factory closures in China, with orders still delayed despite some factories reopening.
Apple said this week that global supplies of iPhones will be constrained, even though its phone manufacturing facilities in China have reopened. The company also said it would not meet its projected revenue for the March quarter, partly due to decreased demand. All of Apple’s stores in China are closed.
Among California tech giants, Apple could be the worst off, said Patrick Moorhead of Moor Insights and Strategy. “Apple is more adversely affected than other manufacturers as the company assembles most if not all of its iPhones, Watch(es) and AirPods there,” Moorhead wrote in an email. He added that companies like Dell and Palo Alto’s HP Inc. will be less affected, since they assemble fewer of their products in China.
Electronics makers like Flex, which has a major presence in the South Bay including prototyping and logistics plants in Milpitas, could benefit in the long term from the disruptions, according to Moor, who said companies may think twice when deciding whether to make things in China. “I believe more companies will factor in China pandemic risk in the future and Flex could be one of the beneficiaries.”
Flex did not respond to requests for comment.
Companies that do assembly stateside — like Santa Cruz’s Future Motion, which makes its Onewheel self-balancing scooter in San Jose — are more protected from disruptions despite having some parts come from Asia.
“Building our products in the U.S. gives us a level of insulation from what‘s happening with the coronavirus, and I’m glad we’re not trying to build product in China right now,” CEO Kyle Doerksen said in an email.
He said the company has plenty of material on hand and obtains processors and memory chips from Taiwan, Malaysia and Singapore. Doerksen said Taiwanese suppliers are mostly back online.
“We planned for the shorter shutdown,” he said. “Long term, we’ll be short some components or we’ll need to pay a premium to fly components in versus shipping by sea.”
Shipping delays for goods that count on Chinese-made parts could mean higher prices on sites like Amazon.com, Eyler of Sonoma State said. “It can lead to a short-term boost on the U.S. side for substitute goods,” he added, noting “People might go to the store and buy things instead of buying on Amazon.”
In the short term, companies will probably wait for the delays to pass rather than move complex assembly lines elsewhere, a costly alternative, according to Eyler.
The reduction in tourism from China due to travel restrictions and canceled flights — none are currently operating directly between San Francisco and China — could also hurt the travel industry statewide. San Francisco gets more visitors from China than from any country except Mexico. Across California, Chinese travelers spend about $4 billion annually, according to Visit California CEO Caroline Beteta.
Mendonca said by email that he anticipates “a temporary hit to tourism in California.”
On the flip side, “a sharp increase in Chinese travel is expected in the second half of 2020” due to “pent-up demand,” he wrote.