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Some US businesses restrict travel to China, close stores because of coronavirus as economic fallout spreads

11:30 29 January 2020 Author :  

Economic fallout from the global outbreak of the coronavirus is spreading as U.S. and other companies restrict travel to China and close some stores there.

U.S. businesses including Apple, Disney, Facebook, General Motors and Starbucks are taking steps to protect their employees and customers against the deadly virus that originated in the Chinese city of Wuhan and has since spread across China and to other countries. Global brands such as Honda and French automaker PSA are also enacting protective measures.

It's still too early to tell what the financial implications of these measures will be for U.S. businesses.

The Trump administration has discussed the prospect of suspending flights to China, but has not made a decision, officials said. It specifically denied a CNBC story claiming the White House had called airlines to ask for a suspension of flights between the U.S. and China, one official said.

The White House official said talks are ongoing. He requested anonymity because of the sensitive nature of the discussions.

Concern about the outbreak is rattling some investors. Stock markets tumbled in Asia Wednesday as fears over the spread of the deadly outbreak. Hong Kong’s Hang Seng index dropped nearly 3%, weighed down by travel-related companies as investors returned from Lunar New Year. Markets in China remained closed for the holiday. On Tuesday, the Dow Jones industrial average rebounded 187 points after logging a 454-point drop, its worst performance since October, as investors fretted over the spread of the virus.

Even if the White House ordered the cancellation of flights to the U.S. from China, there would be minimal impact on the U.S. economy if the travel ban lasts just days or a week or two, says economist Ryan Sweet of Moody’s Analytics. He likened the effect to previous overseas viruses such as SARS and Swine Flu.

But shutting down flights for a month or two would be more significant, Sweet says, likely shaving a tenth of a percentage point off economic growth in the first quarter.

That sounds relatively modest but it would come as Boeing’s halt to production of its 737 MAX airliner is already set to reduce first-quarter growth by nearly half a percentage point to 1.4% at an annual rate, according to Moody’s forecasts.

Chinese tourists spent $36.4 billion in the U.S. in 2018, the most of any country, according to the National Travel and Tourism Office.

A shutdown of all China-to-U.S. flights also could signal wider concerns about the virus that could take a bigger than expected toll on the Chinese economy, and by extension, U.S. markets and the economy, says Moody’s economist Mark Zandi.

Dan Ives, managing director of equity research at Wedbush Securities, warns that if the deadly virus isn't contained by early March, the consequences for China, the world's second-largest economy, and the U.S. companies that do business there could be more serious.

“The broader this coronavirus issue becomes, it starts to add more uncertainty to companies operating in China from a manufacturing and demand perspective,” Ives said. “Right now it feels contained, but given more travel restrictions within China and internationally, this will start to chip away at China’s economic growth.”

The virus raises a broader concern for companies that have major footprints in China, including sectors like technology, manufacturing and automotive, analysts say.

Apple and Tesla are among the biggest U.S. companies with footprints in China, Ives says. Foxconn, the main assembler of iPhones, is located in Zhengzhou, China, while Tesla’s Gigafactory 3 is based in Shanghai. Roughly 20% to 30% of Apple and Tesla’s sales growth over the next year is forecast to come from China, he said.

The fast-spreading virus has prompted automotive companies to restrict or ban travel to China. Honda Motor and French automaker PSA, the maker of Peugeot and Citroen brands, have withdrawn employees working near Wuhan, where the virus emerged. General Motors and Fiat Chrysler Automobiles have also restricted travel to Wuhan.

Facebook and Apple have also restricted travel to China as the coronavirus spreads. On Monday, the Centers for Disease Control and Prevention issued a level 3 warning, its highest alert, cautioning travelers against visiting China.

CEO Tim Cook said Apple has also shut down one store there and is cutting back on retail hours at many of its stores.

“We're taking additional precautions and frequently deep cleaning our stores as well as conducting temperature checks for employees," Cook said Tuesday during Apple's quarterly earnings call.

At Facebook, employees were told to cancel any non-essential travel to the mainland. It has also asked employees who recently traveled to China to work from home.

"Out of an abundance of caution, we have taken steps to protect the health and safety of our employees," Facebook spokeswoman Bertie Thomson said.

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