COVID-19: A strategic shock shakes the world

Sports arenas are without fans. Restrictions on travel are in place throughout the world. People’s interest in toilet paper has irrationally skyrocketed. Who predicted that this decade would begin with what the World Health Organization has just declared a pandemic?

Welcome to the textbook definition of a strategic shock. Across the globe, countries’ best laid plans are giving way to response to something no one saw coming. The spread of COVID-19 has claimed thousands of lives, disrupted supply chains, delayed diplomatic engagements and impacted government priorities, among other things. While this has implications across the globe, it has some specific and important consequences for Japan.

First, it is important to understand what a strategic shock is, and what it could mean looking ahead. A strategic shock is an unexpected event that can disrupt existing trends and make significant changes to the trajectory of world affairs. It undermines the facts and assumptions upon which current policies, plans and strategies are based. Simply put, it is an occurrence that can derail whole countries from their current course.

Most people will witness at least a few strategic shocks in their lifetimes. The collapse of the Berlin Wall in 1989, the Asian financial crisis in 1997, the terrorist attacks on 9/11, the 2008 “Lehman shock” — all of those events disrupted global economic, military and diplomatic trends. As one will readily recognize, the effects of these events are still evident in different areas of the globe.

Fortunately, the COVID-19 mortality rate  is lower than some pandemics of the past, but there are major costs in addition to human lives. That final bill is far from being tallied.

What will that price be for Japan?

Already we are seeing the impacts of COVID-19 on the economy. Heading into 2020, Japan’s GDP growth was already trending negative, and the health crisis threatens to throw Japan into a prolonged recession. Market confidence and domestic production figures suggest that drastic changes will be necessary to right the ship, and officials from the Bank of Japan and the government have already held emergency meetings to discuss the impacts.

The Tokyo Stock Exchange has taken a substantial hit. Last week, the 225-issue Nikkei average saw its worst single-day drop in 30 years, culminating in its largest-ever weekly fall. The yen devaluation that was supposed to spur trade is in doubt as the Japanese currency has fluctuated from above 110 to the dollar down to as low as 101.

COVID-19 is also delivering a major blow to Japan’s industry and service sectors. The disruption to global supply chains has slowed domestic production. This is reflected in Japan’s automotive sector, which has slowed factory output and saw a 10.3 percent drop in domestic vehicle sales in February.

Furthermore, in what should have been a banner year for tourism, numbers have nose-dived, with one research institute projecting about $9 billion in lost revenue owing to COVID-19. While that is the annualized projection, several tourist hot spots are already resorting to drastic measures. Some hotels in Hokkaido, for example, have dropped their rates to the equivalent of about $20 per night.

Then there is the elephant in the room: the Tokyo 2020 Olympics. Will the Japanese government move to postpone it? Will the International Olympic Committee step in and make a drastic call? No one in the Abe administration wants to change course, not least of whom Prime Minister Shinzo Abe himself, who has reached out to other world leaders asking for their continued support for the Tokyo Games.

The Olympics were primed to be Abe’s swan song — the culminating event to cap his record-long run as prime minister. He was set to shepherd the event in grand fashion before tying up loose ends on his controversial agenda items and lining up a successor. We should expect his administration to fight every notion of change related to the Olympics until the very last moment.

Importantly, COVID-19 is unlikely to cause a major shift in the political landscape in the near term. Abe’s willingness to reach across the table to other parties this month insulates his administration to some degree, as does the fact that there is not another major election scheduled until October 2021. Further, critics will argue that Abe could have done better in his response, but we are unlikely to see drastic shifts in public opinion.

The more that other countries around the world struggle to contain COVID-19, the more muted the protest of the Abe government’s decisions will become. For example, Abe made an uncoordinated call to close schools late last month, which led to some criticism. That may have seemed like a bad move at the time, but opponents will find it difficult to criticize this as more than a process foul now that other countries have followed suit. To date, public opinion polls have reflected the fact that Abe alone is not bearing the responsibility for the impacts of COVID-19.

This will change heading into 2021. While the public may not blame Abe or the Liberal Democratic Party for a global pandemic, they certainly will for an anemic response to an economic slowdown. The Abe government will need to make some drastic moves to revitalize the economy rolling into next year; if not, the LDP will be vulnerable during the next Lower House election set to take place no later than October 2021.

If precedent holds true, observers should expect at least a stimulus package in the near term. To rectify the longer term impacts of COVID-19, the government will need to reassess its underlying fiscal and monetary policies, including the consumption tax hike that just went into effect last October.

From a regional relations perspective, the COVID-19 strategic shock is a mixed bag. Last week, Stephen R. Nagy rightly pointed out in his Japan Times commentary that the pandemic presents an opportunity for Japan and China. As the saying goes, war makes strange bedfellows, and in this case the mutual adversary is the pandemic that has damaged both of their economies and affected their populations.

With the first three countries to be drastically affected by COVID-19 being in Northeast Asia, the regional players will need to take some concerted action to re-establish market confidence and to rebrand themselves once the crisis has eased.

Meanwhile, COVID-19 has presented both opportunity and contention between Japan and South Korea. Despite some signaling that 2020 could be a year of mending ties, Japan’s early imposition of travel restrictions irritated South Korean officials, who then reciprocated.

That tension may be giving way as both participated in a working-level conference call Tuesday to discuss the outbreak, but the question remains: Will the Japanese and South Korean governments leverage the strategic shock to overcome their shaky relations from 2018 and 2019, or will they add it to the list of friction points between the two? This will be important to observe in the coming weeks.

Shifting from foreign policy to security, how might COVID-19 affect Japanese defense? We have seen the Self-Defense Forces responding to the coronavirus-related requirements, including transporting passengers from the infected cruise liner Diamond Princess. The SDF has also released stockpiles of masks and distributed them to the public throughout the country. While there has not been a mobilization of forces to support mass medical response, the Defense Ministry has monitored the situation closely for that potential necessity.

While the “fight” against COVID-19 is not over, precedent suggests that “response to a pandemic” or “countermeasures against a substantial health crisis” will probably be added to the SDF’s ever-growing list of responsibilities. In the past, every major incident that required SDF response became a permanent consideration for future SDF missions and responsibilities. For example, disaster relief elevated in importance for the SDF following the 1995 Great Hanshin Earthquake and the Ground Self-Defense Force adopted chemical decontamination capabilities following the sarin gas attacks on Tokyo’s subways the same year.

COVID-19 also looks to impact the defense budget. While we saw record defense spending this year and the Abe government still has aspirations to grow it even larger, the issue of COVID-19’s economic impacts will weigh on next year’s budget plans. How much will the government be able to dedicate to defense if there is a big dent in the economy and government revenue? Will Abe be able to justify additional defense spending when the nation is still recovering from this strategic shock?

For Japan, COVID-19 has taken a 2020 that was meant to be a stable and historic year with the Olympics and has thrown it into disarray. The government has the unenviable task of fighting the spread of the disease, restoring international confidence in the country’s economy and the safety of travel, and establishing new precedents for response. Just like strategic shocks of the past, this will require agile and decisive policymaking for governments to stay ahead of the wave of changes, lest they get swept over by it.

Michael MacArthur Bosack is the special adviser for government relations at the Yokosuka Council on Asia-Pacific Studies. He previously served in the Japanese government as a Mansfield fellow and is a former officer in the U.S. Air Force.

Coronavirus banner

Source: https://www.japantimes.co.jp/opinion/2020/03/18/commentary/japan-commentary/covid-19-strategic-shock-shakes-world/

Leave a Reply