Nearly 400 million people across 45 cities in China are under full or partial lockdown as part of China's strict zero-Covid policy. Together they represent 40%, or $7.2 trillion, of annual gross domestic product for the world's second-largest economy, according to data from Nomura Holdings. Analysts are ringing warning bells, but say investors aren't properly assessing how serious the global economic fallout might be from these prolonged isolation orders.

"Global markets may still underestimate the impact, because much attention remains focused on the Russian-Ukraine conflict and US Federal Reserve rate hikes," Lu Ting, Nomura's chief China economist and colleagues wrote in a note last week. Most alarming is the indefinite lockdown in Shanghai, a city of 25 million and one of China's premiere manufacturing and export hubs. The quarantines there have led to food shortages, inability to access medical care, and even reported pet killings. They've also left the largest port in the world understaffed. The Port of Shanghai, which handled over 20% of Chinese freight traffic in 2021, is essentially at a standstill. Food supplies stuck in shipping containers without access to refrigeration are rotting.

American economic leaders believe decoupling is already underway. Oaktree co-founder Howard Marks wrote in late March that "the pendulum [has] swung back towards local sourcing" and away from globalization. Blackrock Chairman Larry Fink echoed the sentiment in a letter to the company's shareholders. "The Russian invasion of Ukraine," he wrote, "has put an end to globalization we have experienced over the last three decades.

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