Breitbart Business Digest: What China’s ‘Static Management’ Means for the U.S.

Forget lockdowns.

The Chinese regime has started to describe the state-imposed restrictions on movement and activity as putting communities “under static management.” Apparently, the phrase lockdowns was causing people to panic. So China has decided to address public concerns in the very old-fashioned communist way: by changing the language. You aren’t locked down, you are just being managed in a stasis.

We expect that in rather short order we will start to see the effects of static management show up in global supply chains and the supply of goods in the United States. The U.S. imported a jaw-dropping $90 billion of goods from China in just the first two months of the year. That’s a 20 percent increase over the first two months of 2019. In other words, the U.S. economy has become more dependent on imports from China. That makes us even more vulnerable to the impact of closed factories and ports.

When the pandemic first struck, imports from China plummeted by nearly one-third, going from $33 billion in January to $22 billion in February. While trade is unlikely to plunge at that pace this time around, there will be shortages. The production disruptions could last for weeks, which could reverberate through global supply chains for months to come. Both components in U.S.-built goods and components in goods manufactured elsewhere around the world could become scarce. Some consumer goods may experience severe shortages. The upshot is likely to be more inflation for longer.

The U.S. is in a better position than many of our allies. Our exports to China make up only around two percent of U.S. GDP. So, a fall in demand for goods in China will not hurt all that much. Germany and Korea, which export manufactured goods to China at an economically important scale, could be in for the roughest time if the lockdowns last for several weeks. Australia and Russia, which are major commodities exporters to China, could also be hurt.

There is something of a silver lining. Static management should lower demand from China for commodities, especially in the energy sector. That should reduce crude oil prices. A recent estimate by Bank of America analysts found that COVID-related lockdown news out of China had lowered WTI crude oil prices by ten percent. That could offset some of the pricing pressure created by what appears to be further escalation of the war in Ukraine.

The Dallas Fed on Tuesday released an analysis of the OPEC supply gap. Although the oil cartel has been steadily increasing its global production quota by 400,000 a barrel per day each month, production has not actually kept up with the quota. Some of this has been due to Saudi Arabia intentionally keeping supply low to keep prices high and drain inventory levels. But a significant part of the shortfall has been because several OPEC countries are already at the limits of their production capacity. Higher quotas do not do much if you lack the infrastructure to meet them. And there is apparently no mechanism for other OPEC members to pick up the slack when other members cannot meet the quota. This implies that even if oil prices continue to rise, there will not be much more supply coming online from OPEC nations.

The New York Fed came out with its 2022 housing survey. It’s full of dismal, inflation-related news. Expectations for rent increases are way up, especially among renters. A year ago, homeowners expected bigger increases in rental rates than the renting population did. Now it’s the other way around. Most dismal of all is the news that for the first time in the ten-year or so history of the survey, less than half of all renters say they expect to someday become homeowners. Homes are just too expensive; and with mortgage rates on the climb, affordability is rapidly declining.

Today’s data on housing starts did not provide any solace. Demand for housing remains red hot, but supply and labor constraints continue to weigh on builders. Single-family home construction actually declined in March compared with both a year earlier and a month earlier. Tomorrow will bring data on existing home sales. The market expects sales to fall by 4.1 percent compared with a month earlier thanks to rapidly rising mortgage rates, which would be a deceleration of the decline of 7.2 percent from January to February.