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Some US businesses restrict travel to China, close stores because of coronavirus

Apple store. (Pixabay/Released)

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.

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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.

Apple gave “wider than usual” revenue guidance on Tuesday of between $63 billion and $67 billion because of the uncertainty surrounding the unfolding public health situation in China, Apple chief financial officer Luca Maestri said during an earnings call.

“First and foremost our thoughts are with all of those that are affected across the region and…we’re donating to groups that are working to contain the outbreak,” Cook said. “We’re also working very closely with our team and our partners in the affected areas and (as of last week,) we have limited travel to business-critical situations.”

Cook said that while Apple has some suppliers in the Wuhan area, Apple has alternate sources.

“With respect to supply sources that are outside the Wuhan area, the impact is less clear at this time,” Cook said.

Reopening those factories after the national holiday of Chinese New Year has been delayed until Feb. 10, “depending upon the supplier location,” he said.

Walt Disney closed Shanghai Disneyland indefinitely last week.

One financial analyst, J.P. Morgan’s Alexia Quadrani, noted the closure came during celebrations of Lunar New Year. Quadrani says Disney’s studio business could take a hit as movie theaters across the country have been shuttered. If theaters are still closed in March, that could spell trouble for Disney release of “Mulan,” Quadrani said.

Starbucks said Tuesday it temporarily closed more than half of its 4,100 stores in China, its second-largest market.

The impact of the Starbucks store closures is expected to show up next quarter.

“Our immediate focus is on two key priorities in China: first, caring for the health and well-being of our partners and customers in our stores, second, playing a constructive role in supporting local health officials and government leaders as they work to contain the coronavirus,” Starbucks CEO Kevin Johnson said during a quarterly earnings call Tuesday.

Wall Street is trying to figure out how serious a threat this could become for the world economy.

Global investors are sensitive to health scares following multiple alerts over the past two decades, including severe acute respiratory syndrome, or SARS, in 2002-2003, the H5N1 bird flu in 2004, the H1N1 influenza virus in 2009 and Ebola in 2014.

If history is any indication, stocks could pullback in the near term. During the SARS outbreak, stock markets in the U.S. slumped shortly after that epidemic began but later rebounded. Stock markets in China and Hong Kong, meanwhile, had double-digit percentage losses before recovering. To be sure, that time period also overlapped with the Iraq war.

One of the most positive developments since SARS is that the Chinese government has been more vigilant about containing outbreaks, experts say. The initial response by Chinese authorities to this virus has been relatively swift.

Still, some investors have fretted over how long it could take to contain the virus and whether that could put a dent in corporate profits.

“With millions staying in their homes in quarantined cities in China, and many more having canceled their travel plans, the virus will likely have an impact on economic growth,” Solita Marcelli, deputy head of CIO Americas at UBS Financial Services, said in a note to clients.

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© 2020 USA Today