China: Second Degree Effects

In my previous post I mentioned how the coronovirus has the potential to seriously impair the Chinese economy and destabilize the government with possible serious repercussions for the party leadership.

This has been all but confirmed by Chinese attacks on the US as "cruel" for taking steps to  protect itself from further contagion by prohibiting entry to foreigners with recent Chinese travel in their passport records and cutting off of air travel on US carriers.

I have seen no mention so far about shutting out ocean traffic of vessels coming from or through Chinese ports but I expect that will be coming soon both here and elsewhere. As it stands the US, while vulnerable to further contagion it is not the most vulnerable nation.

Once that happens we can expect to see the Chinese stock market to crash rapidly with repercussions for other markets that have become overly dependent on interaction with the Chinese economy including our own. In fact we are already seeing this effect beginning in full anticipation of a highly probable health quarantine of China.

All this of course raises the possibility of even more second degree effects and necessary reactions to them. Firstly, severe contraction of access to foreign markets and cash will trigger waves of loan defaults and unemployment and with it social unrest, as I mentioned previously. This they will try to stem with rapid money creation leading to inflation if not hyperinflation.

Then thr question will become what will the People's Liberation Army do? Will they simply be used in the internal quarantine and  suppression of internal unrest, will they be used in a manufactured foreign crisis as both a distraction and to attempt to create a false patriotic national unity or does the government think they have the logistical capabilities to do both? Or is there the possibility of a straight up military coup and dictatorship?

As to the impact on and reaction to a Chinese quarantine on Western economies I think that is going to depend on how capable of and how quickly they can gear up their own production capabilities to manufacture critical goods presently coming out of China and or create and expand sources from other nations as well as how quickly a vaccine and new antiviral treatments can be developed.

On the US domestic political front we have already seen some of the Democrats insanely trying to blame this crisis on Trump. It is true that the general population has a strong tendency to strictly vote their pocket books and how they perceive the direction of the economy. The impact of Trump Derangement Syndrome on this is going to be hard to measure, at least at first.

In this regard a lot is going to depend on whether or not Trump's team can quickly produce an emergency response plan that addresses both public health concerns and economic contraction that can garner public support.  The other factor will be how willing the Democrats can be to put aside their blind hatred long enough to secure the nation from a real existential threat.

Sadly if recent history is any indicator they won't be able to and will try to exploit the crisis for political gain no matter how much suffering and death it causes.

In any case the next few weeks and months are going to be very interesting if not dangerous.