How The Shanghai Covid Shutdown Will Be Used Against The West

China is in a mild panic, and I have a hunch it has little to do with Covid-19.

Their ridiculous, and failed, “zero-tolerance” Covid policy is magic thinking. But this magic thinking has led to yet another port shut down, this time in Shanghai. The target is not the Chinese longshoremen and lorry drivers, trying to keep them from catching a virus that might kill 0.5% of them. The target is the multinational American and European companies that are being pressured at home to decouple from China. The Shanghai lockdowns stifle supply chains heading to the U.S. and Europe, proving that China is “the indispensable nation.”

China is nervous that people here are thinking otherwise.

Larry Fink of Blackrock just said the war in Ukraine is a signal that globalization is finished. Volkswagen said it will rely less on China, arguably its most important market. As part of its effort to reduce China’s weight in its business, Volkswagen said it would invest more than $7 billion in the U.S. over the next five years, mainly on EVs, the WSJ reported on Monday.

Can you think of an emerging market that has benefited from globalization more than China? Can you name a country that has benefited more uniformly from globalization than China? The U.S. benefited, but that’s more true if you count Wall Street and Walmart
WMT
, Amazon
AMZN
and Apple
AAPL
, according to the International Trade Commission’s own admission last year.

VW knows what the Shanghai shutdown means.

It means supply constraints because everything is made in China, including some basic semiconductors used in automotive manufacturing. That leads to higher prices because things are harder to buy, harder to make. That hurts the U.S. economy.

And for the Chinese Communist Party, that makes for free lobbying by the likes of American multinationals who will argue against trade war tariffs, which, by the way, are already coming down, just as — surprise — the well connected Hillary Clinton predicted back in November.

Shanghai’s Covid Policies: Supply Chain Dumpster Fire

For starters, keep in mind that this is the city of some 20 million people that told you only 7 people died of Covid. Johns Hopkins University’s Covid tracker still has that lucky number on its website without adding a disclaimer, such as: this data is 101% unreliable and probably false.

If you believe only 7 people in all of Shanghai died of Covid, then you believe lockdowns saved lives in China — but nowhere else — and it must lockdown again.

In the real world, logistics managers are now warning clients the latest two-stage lockdown in Shanghai could be worse than the initial Covid lockdowns in Wuhan. How ridiculous is this?

“These lockdowns are possibly more severe than the initial quarantines in 2020 when Covid was first discovered,” Jon Monroe of Monroe Consulting told Lori Ann LaRocco, writing for American Shipper. “Many people will tell you the ports are open. And this is true. But the port workers, factory workers and truck drivers are locked in their homes. This will limit the capability of factories to deliver containers to the ports. It may be almost impossible to get containers to Yangshan and Waigaoqiao,” Monroe said.

The latest CCP “zero-tolerance” Covid antics come after targeted temporary lockdowns failed.

Siri, give me an example of the phrase, if at first you don’t succeed, try and try again.

Sure, how about China’s zero Covid policies?

Xie Xie, Siri.

Búyòng xiè!

The first phase of the lockdown applies to the eastern part of Shanghai and will be enforced all week. This includes the Lujiazui Finance and Trade Zone, where all the pretty Shanghai skyscrapers are located. The Shanghai Stock Exchange will remain open for now.

Shanghai’s western part is the second phase of the lockdown and that will go on until next week.

Offices and all businesses not considered essential will be closed and public transport suspended, creating major shortages on manpower and trucking availability, according to LaRocco’s sources. She is the best on this, by the way.

Seko Logistics warned clients over the weekend of even more lockdowns.

Brian Bourke, Seko’s chief growth officer, told American Shipper, “This may be a significant impact to importers for all transportation modes.”

Container movement between Shanghai and the nearby industrial areas in Jiangsu province are all restricted.

China Traders: A Chance to Cash In

China shippers, unlike their European counterparts, have not done as well in the stock market. COSCO Shipping Holding’s Shanghai shares are up only 6.68% over the last 12 months of supply chain woes. Maersk is up 54% by comparison. But in the real economy, China shippers are doing fine. They are growing.

Shipping is part of China’s “Made in China 2025” plans. It’s a sector favorite of the CCP, in hopes to compete with the Europeans and Koreans.

COSCO has gained market share over the years and is now No. 4. The U.S. is nowhere to be seen in the top 5.

According to United Nations Conference on Trade and Development, China ranked third globally with 6,896 ships and a total deadweight tonnage (DWT) of 128,892,849 in 2020, trailing only Greece and Japan.

China is now the world’s leading shipbuilder. It needs China-centric globalization to continue so it can load China goods on those ships. In the first three quarters of 2021 China delivered 30.34 million DWT worth of new ships, accounting for 45.6% of the world’s total deliveries of new merchant marine vessels, according to the China Association of the National Shipbuilding Industry.

China produces more than 96% of the world’s dry cargo containers and 100% of temperature-controlled containers.

Yup, the indispensable nation. The U.S. makes code.

But only for now.

Will Zero Covid Turn Off The Westerners?

There is no hint that China is relaxing its zero Covid policies even though Premier Li Keqiang bemoaned them to some degree at the “Two Sessions” conference in Beijing this month.

By the way, Keqiang has had it with this nonsense. He is stepping down.

Will the supply chain woes, caused by China, turn off Westerners?

Here’s all you need to know on that: the volume of trade between the U.S. and China increased by 30% last year $750 billion. two weeks ago, Li called for the U.S. to relax its export restrictions on China to further boost trade.

And guess what happened?

Last week, the United States Trade Representative decided to allow for more than 300 new tariff exemptions on Made in China products subject to Trump-era tariffs.

The anti-China rhetoric is mostly just rhetoric.

Despite Washington’s yapping about China supporting Russia (by signing an oil and gas deal and lifting wheat import restrictions, that’s it), the threat of secondary sanctions against China is falling on deaf ears.

Last week, Treasury Secretary Janet Yellen calmed Wall Street and K Street’s nerves that punitive sanctions might befall the Chinese economy.

“I don’t think that that’s necessary or appropriate at this point,” Yellen said in an interview on CNBC.

Shanghai lockdowns are a headache for U.S. importers. China knows it. But it serves China’s business interests more than it serves public health policy, seeing how lockdowns have done nothing to bring China to eradicate Covid.

The U.S. and China economies are too enmeshed, “don’t you dare try to detangle it” is the message.

If China can frighten U.S. policymakers over supply chains, then despite talk from Larry Fink on “deglobalization”, the only country the U.S. will be “deglobalizing” from will be countries were barely trade with — Russia, or Iran, for example. Meaningless, empty words. Find me a town in upstate New York left hollow by trade with Russia?

For the smarty pants inside the CCP, it’s like this: “hey, you want to break up? Go ahead. Leave. We’re ripping out the wiring and punching holes in the wall. And busting a few pipes.”

That’s what these port lockdowns are all about.