China/Austalia economy, page-7

The damage will work in both directions. We will lose on imports and exports.

Exports will result in a loss of national income and imports in a loss of the supply of goods. A vast number of SME's in Australia rely on Chinese suppliers. If the Chinese are not manufacturing they are running down their inventories, and as any accountant will tell you, maintaining a large inventory is bad business.

Stuff already on ships will probably get through but it will be the next batch that will be missing - think ships and production not happening now that would be arriving at our shores two or three months down the track. We will start to see the impact a few weeks after that with Australian businesses starting to struggle.

Most of this is already baked in assuming there is a speedy recovery in Chinese output from this point forward. It could get worse than this if it goes on much longer. It could work out better as there is also excess manufacturing capacity in China but it is not in every industry. There will be hot competition for supplies across the world so don't be surprised if there is also inflation in the future.

It will be a fascinating test of the resilience of the global JIT supply chain and I predict a move toward geographic supplier diversification and even a general industry move toward larger inventories - a reversal of the last twenty to thirty years.