For the past couple of weeks, we’ve been talking about two things: the war in Ukraine (and its effects) and inflation and the Fed. These have very much been the hot topics, and deservedly so. But with a lull in the news on both, it’s time to check back in on Covid, which has not gone away.
Signs of Resurgence?
Covid is, it’s true, much less of a problem than it has been, which is why it is out of the headlines. Reported daily infections have dropped down to under 30,000 per day, on a seven-day average basis, which is the lowest we have seen since last summer. Deaths and hospitalizations are down as well, and the positive testing rate has stayed well below the 5 percent threshold that signals the pandemic is under control. From a social point of view as well, this level of Covid seems to be something that we as a society are prepared to live with.
But there are signs we need to be prepared for another resurgence. A new variant of the virus now accounts for the majority of cases in several states. Traces of the Covid virus are trending up in wastewater samples. Although the number of cases is low, over the past couple of weeks, it has stopped dropping. With large numbers of people still unvaccinated and with most areas no longer masking, another wave is quite possible.
Even if we get one, though, here in the U.S. the economic impact is likely to be small. After the Omicron wave, the next one—if any—will likely be much milder. We don’t need to worry as much about the U.S. It is the next Covid wave in China that should concern us.
China Remains Vulnerable
China, which has consistently pursued a zero-Covid policy driven by mass shutdowns, remains vulnerable in ways the U.S. is not. Here in the U.S., we have effective vaccines; in China, they don’t. Here in the U.S., most people have been exposed to the virus in one way or another; in China, they have not. Here in the U.S., we have been through the Omicron wave. In China, they have not.
That means that most people in China have little or no immunity. If the virus does get loose, the damage will look like what we have seen over the past two years. In other words, all of the pain and disruption we have suffered over the past two years, and have largely moved past, is very likely still in front of the Chinese if Covid gets loose.
To our point today, if the virus does get loose there, which is more likely as more contagious strains evolve, all of the economic disruption is also in front of them—and in front of the supply chains that continue to supply the U.S. with many goods. This is the next economic stage of the pandemic: the disruption of production.
It may not happen. China has been remarkably successful in containing the virus so far, and the actual disruption to Chinese manufacturing has been minimal. Most of the supply chain problems we have observed come from transportation problems, not a shortage of actual supply. As long as that continues, we can reasonably expect the supply chain problems to continue to ease. But as more contagious strains continue to evolve, the ability to keep infections contained gets harder and harder, and the odds of a breakout increase.
What to Watch
This will be the next stage of the pandemic. From a social and medical perspective, we have largely moved past it here in the U.S. From an economic standpoint, we are getting close—here in the U.S. But the next phase of the pandemic is likely to be more about economics as it disrupts production in China, and that is what we need to watch now.