EU-JAPAN SPA FACILITY
COVID-19 WEBINAR SERIESCOVID-19 & Business
18 June 2020
WATANABE Tetsuya
Director-General for Trade Policy
Ministry of Economy, Trade and Industry

Mechanism of economic crisis
 The current crisis was developed on a global scale due to the simultaneous
movement of “supply shock” and “demand shock” triggered by restrictions on themovement of people.
 This should be considered as an extraordinary economic crisis that has adifferent character from the past economic crisis and cannot be overcomeby traditional economic measures.

Res trictions on the movement ofpeople by border closure and stay‐at‐home order

Supply shock
Supply chain disruption
Sus pension of servi ce
Demand shock
Decrease in demand for face‐to‐faces ervi ces“Eva poration” of demand for durable
goods

Income/employment shock
Further expansion of economic
deterioration by i ncome a nd
empl oyment s hockThis mechanism led to Global unprecedented economic crisis

Types of economic crisis
TypeDamage

Shock

Key to recovery

DisasterProduction
Supplyequipment andcapital

Reconstruction

Financial crisis

Financialsystem

DemandFinancialsystem
recoveryHumaninterface

Supply anddemand

Infectious
diseaseDestruction of production equipment and social capital, supply constraints(Great East Japan Earthquake)
Restrictions on imports and distribution of overseas dependent materials(oil crisis)
Drop of asset prices, stagnation of consumption and capital investment(Japan after Lehman shock)End of infection2

Need for global response There were 2nd and 3rd wave of past infectious diseases. The timing of the endof infection varies from country to country, and infection in developing countries
may spread further. If the development and dissemination of therapeutic
agents/vaccines is delayed, or if containment fails in some countries/regions, theeconomic crisis may be prolonged or serious.
 How much time should be taken to overcome a crisis? It is necessary tostop the infection not only at home country but also at the global level.
Spanish Flu in US

Three tracks to a coronavirus vaccine

The 2nd wave
（Autumn 1918）
The 1 st wave
（March 1918）(Source) Centers for Disease Control and Prevention(https://www.cdc.gov/flu/pandemic‐resources/1918‐commemoration/three‐waves.htm)

Tsunami (US/Europe)
The lockdowns aren't close to ascomplete or effective. where risksof secondary outbreak have more
immediate

Missile (Developing world)
The economics of shutdown are
too costly, the case expansion
too hard to track let alone trace

The 3 rd wave
（January 1919）

Mountain (China)
The harshest possible lockdown, theeconomy essentially stopped duringthat time, and then an equally quick
restart(Source) Ian Bremmer Eurasia group update(5/11)

3Vulnerability of global supply chain The global supply chain is fragmented around the world due to the corona crisis,
and the risk of supply chain disruption of various goods becomes apparent.
 What was the risk in the production (materials/intermediategoods/finished products) and logistics supply chains that wereconstructed across borders?
Examples of supply chain disruption
EU→World
Restriction of
medical goods supplyEU
Stagnation of movement
causes labor shortage

EU
Increased time required
to cross border

China
After the New Year's holiday,
migrant workers did not return fromrural areas and labor shortage occurred
China→Japan
Supply disruption ofautomobile parts andelectronic partsUSIsolation measures associated withentry impede technician mobility

ASEAN→Japan
Supply disruption ofautomobile parts andelectronic parts

Worldwide
Suspended passenger
flights reduce airtransport capacity

China
Delay in land transportation due to city blockade,reduction in number of container ships departingfrom China(Source) Press release, Global Trade Alert

4

Concentration of international import sources/production bases
 Since the 2000s, as globalization has progressed, the concentration of importsources and production bases of some goods has increased.
 How should we consider the balance between "economic efficiency byconcentrated production" and "response to supply disruption risk"?

Dependence of import source on China
30%

Concentration of import source of electrical machineryand electronic parts (Herfindahl-Hirschman Index: HHI)
3,500

Japan

3,000

Korea

2,500

US

2,000

World

1,500

Germany

1,000

World

5%

500

Germany

0%

025%
20%
15%
10%

Japan
Korea
USChina

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
(Source) International Trade Centre(Source) International Trade Centre

HHI: An index that measures import dependence. The higher the number, the more concentrated. For example, if Country A imports 50% fromCountry B, 30% from Country C, and 20% from Country D, the HHI of Country A is 502+302+202=3,800. The maximum value (when dependenton only one country) is 1002=10,000.

5”My country first” vs. “International cooperation” in emergency
 Demand for Personal Protective Equipment (PPE) has increased explosively, andthe shortage of those goods has become more serious. Export restrictions hasalso prevailed.
 Are crisis preparedness and international cooperation in emergency
sufficient? Export restrictions when the exporting countries areconcentrated in a specific source country are not only a constraint to end
the crisis in the world, but if the restrictions remain after the end of thecrisis, they will hinder the economic recovery.
Export restrictions

Export country of PPE

80 countries (including 72 WTO member)

0.0 %

5 .0%

12.7%

United States

Gloves10 .2%
4.8%

Jap anDisinfectantFrance

Pharmaceuticals

Italy

3.8%

Ne therland s

3.7%

Food
Medical equipment
Other medical related goods
WTOmember

WTO
non-member

20.0%
17.2%

G ermany

Protective clothing

Soap

15 .0%

ChinaMask, goggles

COVID-19 test kit

1 0.0 %

4.5%

Belgium

3.2%

U nite d K ingd om

2.8%

P olan d

2.4%

Export share of three countries
reaches nearly 50%

Toilet Paper(Source) WTO https://www.wto.org/english/news_e/news20_e/rese_03apr20_e.pdf(as of 2020/4/22)(Source) WTO https://www.wto.org/english/news_e/pres20_e/pr855_e.htm（as of 2020/4/22)

6Changes in the trend of globalization
 Globalization was a great driving force for the world economy, where people,
goods, money and data move across borders to create added value.
 How will the globalization trends change after the corona crisis, where 1)
the face-to-face communication between people will be restricted, 2) thesupply chain will be reviewed, and 3) the importance of the digitaltransformation will increase? How can we crate added value under newnormal?
People, goods, money and data move across borders

Recent situation and future forecast
500

500%

140

450

450%

Capital movement（FDI stock）

400%
350%

400

300

250%

GDP

200%
150%

▲6％100Trade250

Original 80
forecast

20060

Data flow

150

100%
50%

People movement5002015
2016
20172018
2019
2020

2002
2003
2004
2005
2006
2007

0%
2000
20011002008
2009
2010
2011
2012
2013
2014

Trade volume

2nd wave scenario

120

Further more?

350

300%

Base scenario▲3%GDP▲13％ Optimisticscenario▲32％ Pessimistic scenario

FDI flow40
2002015 2016 20172018201920202021（Source）UNCTAD, UN, WTO, IMF ※2000=100%（Source）Cisco, 2019, IMF, WTO, UNCTAD ※2015=100%Regarding the IMF forecast of GDP, the basic scenario is when the spread of infection will end in the second
quarter of 2020 (China's first quarter). The second wave scenario refers to the forecast when the outbreak in2020 and the second outbreak in 2021 also occur.

7

Restructuring of global governance and international cooperation
 While “centrifugal force” tends to work in international cooperation over
responding to the corona crisis, there are also movements to maintain“centripetal force” in international cooperation at leaders level or ministries level.
 How should we consider the positive and negative aspect of globalization?
In order to improve crisis response capabilities, should we deepen not
only domestic response but also international cooperation? How can webuild new global governance toward a flexible and balanced economic andsocial system that is highly resistant to crisis?
Examples of “centrifugal force”■ Trade restriction measures• US-China trade dispute• Unilateral measures• Export restrictions on masks, etc.

Movements to maintain “centripetal force”◎ G20 Trade and Investment Ministerial Statement (30 March)
We agree that emergency measures designed to tackle COVID-19, if deemednecessary, must be targeted, proportionate, transparent, and temporary, and thatthey do not create unnecessary barriers to trade or disruption to global supply
chains, and are consistent with WTO rules.

■ Concerns about excessive market
fragmentation◎ ASEAN ‐ Japan Economic Ministers’ Joint Statement on Initiatives on Economic Resilience inResponse to the Corona Virus Disease (COVID‐19) Outbreak (22 April)• Strengthening security-related
regulations in each country

The Ministers affirm their commitment to strengthen cooperation on building
resilient supply chains to enhance the regionʼs position as a global trade andinvestment hub.

■ Weakened functions of internationalorganizations and regional integration• Stalemate of the WTO reform including
the Appellate Body
• USʼs withdrawal from Paris Agreement,
suspention of contribution to WHO• Brexit◎ STATEMENT ON COVID‐19 AND THE MULTILATERAL TRADING SYSTEM BY MINISTERSRESPONSIBLE FOR THE WTO (5 May)
We stress that trade restrictive emergency measures aimed at protecting health, if
deemed necessary, shall be targeted, proportionate, transparent and temporary,not create unnecessary barriers to trade or disruption to global supply chains, andbe consistent with WTO rules. We support the full resumption of all WTO activities
as soon as feasible. We will also support continued efforts to reform the WTO sothat it is as effective as possible.

8

Progress of digitalization and new technology triggered by the corona crisis
 In the corona crisis, needs for digital usage and emerging technology wereincreased. It includes technology for tracking individual behaviors to prevent thespread of infections and communication tools that allow business continuity while
avoiding contact with other people.
 Technological innovation triggered by the corona crisis would significantly
change the businesses and society, and affect industrial competitiveness.
Establishing new international rules and standards for digitalization will
become even more important.
Innovation•
tracking /monitoringapps•••
Unmanned•

Telecommunication••

Track contact with infected people bydigital data such as location data andpayment data.
Trial for tracking of movement in Chinaand Korea, monitoring high-risk contact
in UK and Singapore
Self-diagnosis system using AI
Serving, monitoring and disinfecting incontaminated areas using robots anddrones
Widely used in China for safe andefficient control of infectious diseases
Remote medicine, education, work
rapidly expanded
Introduction of 5G and VR in some
hospitals

ExamplesApp monitors themovement of the infected
person and announces
attributes and movement
information (South Korea)

Centrally managed bylinking mask distribution
data and healthinsurance card ID(Taiwan)Megvii has developed an AI
system that can identify
hyperthermia from thecrowd of 15 people/sec
within 5 m. (China)

Unmanned transporters fordelivering drugs and foodto isolated patients anddrones for monitoring,measuring bodytemperature, anddisinfecting (China)(Source) wall street journal(Source) Toyo keizai

PingAn GoodDoctor
conducted 1.1 billion remote
medical treatments after
corona which are covered byinsuarance. Also available
for 24 hours. (China)(Source) NHK(Source) Nikkei(Source) Nikkei

Alibaba provides telework
support software to 10
million companies free ofcharge. Increased thenumber of members to
200 million. Baidu andothers follow (China)(Source) MIT technology review

9Implications for the challenge of "inequality" While the economic inequality between “nations” has narrowed, there wereconcerns about the expansion of economic inequality “in each country”.
 How will the corona crisis affect the issue of “inequality” in the future?

Ratio of national income
by income class (US)Gini coefficient (between “nations”)
Percentage ofnational income

60
inequality between “nations” has narrowed

Top10%

50
40

Middle40%30
2010（Source）Created based on Francois Bourguignon（2015）

2014

2006
2010

2002

1998

1986

1982

1978

1970
1974

1966

1962

01990
1994

Bottom50%（Source）World Inequality Database10