Coronavirus, Brexit and a Chinese Trade Deal: Recent Events and the Potential Impact on Houston

Published Feb 18, 2020 by A.J. Mistretta

Bayou Business Download is a podcast from the Greater Houston Partnership that dives into the data and analytics influencing the region’s economy and the core business sectors that drive Houston’s growth.

On this edition of Bayou Business Download, we chat with Partnership Senior Vice President of Research Patrick Jankowski about a number of recent global events, from the coronavirus and Brexit to the signing of the U.S. Mexico Canada Agreement, and their potential impact on Houston.

Here are 5 key takeaways from the conversation:

Coronavirus Concerns
While there is a great deal of understandable global concern around the coronavirus (now named COVID-19 by the World Health Organization), the vast majority of cases remain centered in China where officials are working to contain it. However, China is a much bigger player in the global economy than it was 17 years ago during the SARS outbreak. Back then, China represented only 4.3% of global economic activity compared with 15.3% today. We also didn’t have the integrated global supply chain that we do now and those are just a couple of the reasons global markets are concerned about this outbreak. The virus’ affect on Houston is likely to be felt in trade, tourism and other areas, but the biggest impact may be the drop in demand for crude oil and related products.

U.S.-China Trade Deal
As China deals with the coronavirus, trade tensions between the U.S. and the world’s largest country are easing. A newly signed U.S.-China trade deal essentially calls a truce to what had been a mounting trade war and starts removing some tariffs on both sides. Parts of the deal call for the Chinese to open their automobile markets as well as buy more agricultural products and energy products from the U.S. The Chinese have agreed to buy another $200 billion in goods and commodities over the next two years, including $52 billion in energy related products specifically. That is likely to have a positive impact here in Houston.

USMCA
The biggest impact of the United States-Mexico-Canada Agreement is that it brings some certainty to trade between the countries. A lot of investment was sitting on the sidelines and this helps pave the way for that to move forward, particularly in Mexico which is Houston’s largest trading partner. We are going to see increased trade between the U.S. and Mexico as a result of the deal and that should prove a benefit to Houston.

Brexit
Part of what led voters in the United Kingdom to want to exit the European Union was that many felt they had lost control of their sovereignty under the EU. When the nation officially left the EU on January 31, they essentially left the political part of the union but they have 11 months to negotiate future trade relationships. Houston has already had visitors from the U.K. wanting to establish closer ties here and in Texas. We’re likely to see an increased amount of physical trade of goods and commodities back and forth between Houston and the U.K. as well as an increase in investment from firms on both sides now that there are fewer restrictions.

The Federal Reserve did not lower interest rates at its January meeting. That suggests the Fed is not concerned about a possible recession, which is good news for Houston since the health of the broader national economy is one of the three big pillars of the local economy, along with the global economy and the energy sector.

Listen to this and future episodes of the Bayou Business Download podcast here. Get updates on key economic indicators and other data and analysis from the Partnership Research team here. Find more on these issues in the February edition of Economy at a Glance.