Three for all, rather than free-for-all

China, Japan and the ROK can work together to mitigate the impacts of the pandemic on the global economy

Scholars and famous international bodies, such as World Bank and the International Monetary Fund, have pointed out that the negative impacts of the novel coronavirus on the global economy, as well as the economy of China, Japan and the Republic of Korea. I would like to talk about the next steps in response to the novel coronavirus pandemic.

In their video summit, the G20 leaders mentioned that the global economies should closely cooperate with each other at this critical juncture, yet clear and specific direction on the cooperation required to deal with this emergent situation is still needed.

What kinds of policies might be effective in reducing the negative impacts of the coronavirus pandemic and would help promote the recovery of global economy and ensure sustained growth?

There are a few things that should be done.

First, with China and the ROK having effectively controlled the spread of the novel coronavirus, Europe and North America, particularly the United States, are now the main battlefields in the fight against the virus. Since the ROK and China appear to have flattened the curve of new cases, they should actively share their experiences with the rest of world, particularly the US and European countries. It is vital that the two countries share all of their clinical data and quarantine experiences with the rest of world, so that countries can quickly bring the pandemic under control.

Second, China, Japan and the ROK need to promote the trade in goods and services among themselves and with the rest of the world to maintain the current global supply chains. In order to do that, they should temporarily eliminate the tariffs on the trade in intermediate goods, as this trade comprises the key parts for assembling final goods.

Recently, the ROK's auto industry experienced a severe decline in output because several key parts could not be imported from other countries, including from China and Japan. The ROK's imports of intermediate and capital goods deeply depend on China and Japan. Small and medium-sized enterprises are more vulnerable to the disruption of supply chains than large companies. Most global businesses in China, Japan and the ROK have faced a similar problem. Thus, we need a special free-pass program at the border, which is only applicable to special items within a limited time period.

Since both North America and Europe are facing a rapid increase in the number of new cases, the three countries can demonstrate leadership to the world by reversing the current contraction of global trade by using a special free pass system on certain goods. Particularly, it is very important to guarantee a free pass for the medical products and equipment which are needed in the fight against the virus. We must maintain the trade flow of essential economic goods and services rather than shutting down their movement at borders.

Third, trilateral currency swaps among central banks would also help mitigate the adverse impact of the virus on the three countries' financial sectors. As we know, it is crucial to maintain a sound financial system. In this respect, China, Japan and the ROK should to devise a trilateral currency swap mechanism.

Finally, the sudden and unexpected escalation of the novel coronavirus has shown the cross-border vulnerability of supply chains and raised the necessity of establishment of new supply chains. Most global enterprises will consider and re-evaluate country risk in establishing their new supply chains and the country risk will depend largely on the transparency of regulations or systems of a country because in general stability tends to be proportionate with the transparency. Low wages will no longer be the key factor in the process of decision-making for international investments. Low-risk and high technology will be the most important factors considered in establishing a new supply chain. That is why the three governments should reform their domestic regulation and restructure their industries in a transparent and market-oriented direction.

The author is senior research fellow with Korea Institute for International Economic Policy. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.