The coronavirus outbreak is widening the gap between Chinese and U.S. economies

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Good morning.

Coronavirus has replaced trade wars as the top topic of conversation for global business leaders. But the end result may be the same: further “decoupling” of the Chinese and U.S. economies. Fortune’s Clay Chandler—a long-time analyst of U.S.-China business relations—takes a look at the state of that relationship for the April edition of Fortune magazine. Digital subscribers can read his analysis online today here.

A couple of takeaways:

— Companies are actively moving to diversify their sourcing, regardless of the pause in the trade fight. Electronics retailer Best Buy, for instance, says it will reduce products made in China to 40% of the cost of goods it sells, down from 60%. CEO Corie Barry said the virus “was one more piece of evidence that will continue to put pressure on diversifying supply lines.”

— Many of the Chinese students enrolled in U.S. colleges and universities face travel restrictions that have prevented them from returning for their spring semester.

The irony, of course, is that as of this week, there are, for the first time, more cases of Covid-19 reported outside of China than within it. Indeed, the Chinese are now putting foreign travelers in quarantine to prevent new outbreaks at home. Meanwhile, tit-for-tat actions between the two countries continue: the latest was China’s decision yesterday to expel journalists working for The New York Times, The Wall Street Journal and The Washington Post. None of that helps the global economic outlook.

Other news yesterday: Marriott, hard hit by the virus-related drop in travel, said it will furlough tens of thousands of employees. Expect a steady stream of those kinds of announcements in the weeks to come, starting with the travel and oil industries—the first to be hit—but spreading to others. Fair to assume that budget conversations are going on in most companies this week, as the outlook dims.

And one last item: Since August of 2017, America’s big cap companies have repurchased a staggering $1.25 trillion in shares. Was that a smart use of their money? Well, it doesn’t look like it right now, with the market having lost all its gains since then. Particularly troubling are the big buybacks by the airlines, who, having given back all their cash, are now looking for a government bailout. You can read Shawn Tully’s analysis here.

More news below.

Alan Murray


Markets fall

It was all looking good in Asia, until it wasn't. Towards the end of the day there, markets suddenly slipped into the red, with the Hang Seng down 4.2% and the Nikkei 225 down 1.7%. In Europe, the Stoxx 600 is down more than 4% at the time of writing. The S&P 500 may have gained 6% yesterday but futures look ugly. Volatility, volatility, volatility. Wall Street Journal

Government interventions

The stock-market drops follow more government interventions to mitigate the coronavirus fallout. The U.K. is putting $400 billion into the effort, mostly in the form of government-backed loans and guarantees, and the U.S. intends to deploy $1 trillion, including direct payments to households and businesses, as well as corporate loans from the Fed. Fortune

Recession scale

Deutsche Bank researchers now estimate—with an appropriate lack of certainty—that the world is about to tip into a very severe recession indeed: "The quarterly declines in GDP growth we anticipate substantially exceed anything previously recorded going back to at least World War II." (For more on the form it might take, Fortune has a recession Q&A.) DB Research

Hedge funds

Emerging markets-focused hedge funds Pharo Management and Autonomy Capital have taken significant hits this month (13% and 17% respectively) due to fears of coronavirus-induced economic damage, plus the impact of the oil price war. Financial Times


Changing tack

If you're wondering why the U.S. and U.K. have both drastically changed their approaches to fighting the pandemic in the last couple days, the answer lies in new forecasts by researchers from Imperial College London. In short, a strategy of slowing the virus's spread rather than suppressing it, China style, would probably kill 260,000 people in the U.K. and 1.1 million in the U.S. in the coming months. So, social distancing it is then. And when will that be over? Unfortunately, the tactic may need to be repeatedly deployed until a vaccine is found, and intrusive surveillance could become even more a part of life than it already is. New York Times

WeWork bailout

SoftBank's planned bailout of WeWork may not go ahead, according to the Journal. Apparently SEC and Justice Department probes into the business give SoftBank what it believes is an out under the $3 billion share-purchase deal it struck last fall. This is all separate from the $5 billion lifeline SoftBank agreed to give WeWork directly. WSJ


Joe Biden is closer to the Democratic nomination for November, following big wins in the Florida, Illinois and Arizona primaries. Ohio officials postponed that state's primary, which was also due to take place Tuesday, due to the conflict between voting and social distancing. CNN

Online concerts

Musicians such as John Legend and Coldplay's Chris Martin are "touring" online as a replacement for the physical gigs they can no longer play. Estimates suggest the live music industry could lose something like $5 billion during the outbreak. CNBC

This edition of CEO Daily was edited by David Meyer.

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