Managing the U.S. and China: Japan’s best way forward by FUNABASHI Yoichi, HOSOYA Yuichi and JIMBO Ken

“API Geoeconomic Briefing” is a weekly analysis of significant geopolitical and geoeconomic developments in the post-pandemic world. The briefing is written by experts at Asia Pacific Initiative (API) and includes an assessment of burgeoning trends in international politics and economics and the possible impact on Japan’s national interests and strategic response. (Editor-in-chief: Dr. HOSOYA Yuichi, Research Director, API & Professor, Faculty of Law, Keio University)

This article was posted to the Japan Times on May 18, 2021:

API Geoeconomic Briefing

May 18, 2021

Managing the U.S. and China: Japan’s best way forward


Asia Pacific Initiative (API)


HOSOYA Yuichi,
Research Director,
Asia Pacific Initiative (API);
Faculty of Law, Keio University


MSF Executive Director,
Asia Pacific Initiative (API);
Faculty of Policy Management, Keio University


In the second installment of a three-part series, executives at the Asia Pacific Initiative — Chairman Yoichi Funabashi, Research Director Yuichi Hosoya and Ken Jimbo, Executive Director for the Japan-U.S. Military Statesmen Forum — discuss how the international order involving the U.S. and China has evolved over the years and how it has affected the Japan-U.S. relationship.

With the United States taking a harsher stance on China on the topics of human rights and trade, Japan is at a crossroads as to whether it too should follow a firmer line on China or continue to be strategically vague to avoid damaging Tokyo’s strong economic relationship with Beijing.

KJ: The core challenge for the Japan-U.S. alliance is how Tokyo and Washington can align themselves to craft their strategies towards China both in terms of security and the economy.

Regarding U.S. President Joe Biden’s administration, there are shared assumptions among U.S. policymakers that American predominance in the military domain vis-a-vis China is no longer taken for granted both in terms of quality and quantity. In reviewing its military strategy, the U.S. will explore integrated combat capabilities by adapting battle concepts that integrate multi-domain missions and by employing new technologies.

This requires Japan to upgrade its own defense capabilities to achieve joint doctrines and operations. The 2015 Japan-U.S. Defense Cooperation Guideline needs to be upgraded in order for the alliance to pursue strategic competition with China.

The key issues involving Japan are strengthening defense of the Senkaku Islands and maintaining the status quo in the Taiwan Strait.

On the former issue, Japan needs to construct a phased-deterrence mechanism against provocative actions that go beyond what can be dealt with by the Japan Coast Guard’s law enforcement activities, by incorporating the Self-Defense Forces and also its alliance with the U.S.

In addition to the Biden administration continuing to affirm that the Senkaku Islands are covered by Article 5 of the Japan-U.S. security treaty, Japan should drastically boost its own abilities against provocative actions that fall short of armed attacks.

As for the Taiwan Strait, Biden and Prime Minister Yoshihide Suga underscored the importance of “peace and stability across the Taiwan Strait” in a joint statement issued in early April.

However, it takes great energy to maintain the status quo in that region, considering China’s overwhelming military presence and its expansion of abilities that could hamper U.S. military intervention.

The alliance has to account for a possible contingency by preparing a military posture and operation plans in Taiwan to deter China from attempting to forcibly change the status quo.

In terms of geoeconomics, issues that were raised in the recent Japan-U.S. summit will be key.

Firstly, the Biden administration launched a 100-day review of supply chains targeting four key industries — computer chips, large-capacity batteries, rare earth metals and pharmaceuticals.

The White House is also expected to conduct yearlong reviews of supply chains for broader sectors, including defense, information technology and energy.

The second area is Japan-U.S. cooperation in emerging technologies. Suga and Biden affirmed their commitment to deepening cooperation in research and technological development of 5G and next-generation mobile networks, the digital economy, artificial intelligence, quantum information sciences and civil space.

The third point is the emphasis on a shift to a decarbonized society in the existing framework of assisting infrastructure development in other countries.

The Biden administration apparently pushed to include infrastructure development in the context of climate change.

From a geoeconomic perspective, we can see a fusion between strategic goals and economic tools. But we should take a good look at whether it is really possible to strengthen industrial competitiveness through supply chain reviews and technological enclosures.

If export controls and investment restrictions against China are maintained, it is akin to taking import-substituting protectionist policies.

Unless such measures are taken along with proactive industrial promotion, it’s impossible to get the upper hand in technological and price competition.


Immature policy coordination

Policy coordination on economic security between the two allies is still in its infancy.

One issue is that American policies on trade control, advanced technology and investment, and restricting government procurement, aren’t positioned within the context of cooperation between allies.

For instance, the U.S. Department of Commerce unilaterally decides which companies will be registered in its trade blacklist, called the Entity List, without consulting allies.

If certain Chinese firms are blacklisted by the U.S., Japanese companies will be affected tremendously as they won’t be able to do business with them.

If the Biden administration attaches importance to its allies and hopes to deepen cooperation among democracies, it should clearly position export control and other restrictive measures under its relationship with allies. It needs to build a mechanism in which positions of the countries involved are taken into account in such measures, rather than the U.S. unilaterally notifying them of its decisions.

Similarly, human rights diplomacy is also an area of challenge in alliances.

The Biden administration is expected to take an extremely tough stance against nations with human rights issues, such as Russia, China and Myanmar, and therefore Japan will face more situations where it may need to express its position on those issues.

As a nation advocating a so-called Free and Open Indo-Pacific strategy based on liberal economic activities under the rule of law, Japan must put strong emphasis on human rights.

But that doesn’t mean Japan and the U.S. must agree on all the specific approaches to human rights diplomacy.

Japan has a long history of human rights diplomacy, and as Yuji Miyamoto, who once served as Japanese ambassador to China, said, its basic stance is “to clearly express its values, but act with caution.”

In other words, Japan has consistently taken the position that human rights violations should absolutely be condemned, but that its diplomacy should be conducted with an exit strategy, rather than blindly isolating countries.

More specifically, Japan should leverage official development assistance and other technological assistance as a bargaining chip to patiently call on them to stop human rights violations and encourage them to democratize.


Shift away from China

YF: Although Japan is engaged in territorial disputes with China, Japanese businesses’ dependence on China rose greatly in the last eight years.

Japanese companies are benefiting from the Chinese market, which means it is easier said than done for Japan to shift away from China, and it is becoming increasingly important for Japan and the U.S. to be on the same page.

To begin with, while Japan and the U.S. have been allies, they were involved in fierce trade frictions between the 1970s and mid-1990s.

When the Cold War came to an end, some in the U.S. said that it was Japan that won the war, indicating a strong sense of rivalry against Japan in economy and trade.

Suga and Biden have committed to responding better as allies to geoeconomic challenges posed by China.

This is certainly necessary, but in strengthening cooperation in economic security policies, both Tokyo and Washington should be aware that it is vital for them to cooperate with private sector companies, who have their own logic and interests, and that such cooperation has difficulties separate from those faced in defense and security cooperation.

On that front, Japan’s National Security Secretariat (NSS) and the U.S. National Security Council (NSC) must work more closely together to coordinate policies.

An economic division was added to the NSS in April last year, but the division has yet to become the control tower of economic security strategy for the entire government.

It is necessary for the NSS as a whole, rather than just the economic division, to make an all-out effort to put together economic security policies as its top priority.

The Biden administration and the Suga administration appear to have gotten off to a good start, but a big challenge awaits them in coordinating policies.

The latest meeting revealed the difficulty for the two nations to reach a consensus on how to deter China and engage in a dialogue with the nation regarding Taiwan.

Some in the U.S. are saying that the government should opt for strategic clarity in its stance towards China concerning Taiwan, because sticking to strategic ambiguity would be insufficient.

But Japan and the U.S. should deepen strategic dialogue on the basis that merely speaking out against China won’t work.


Domino effect

Beijing’s attempts to increase its sphere of influence are aimed not so much at actively exporting its own ideologies or doctrines but rather at expanding, as Henry Kissinger put it, by “cultural osmosis” — spreading its values, sense of order, social norms and lifestyle.

The Chinese Communist Party regards all people of Chinese descent — regardless of which countries or societies they live in — as its people in cultural terms, which can be seen as an attempt to overwrite the identities of different ethnic groups.

We can also regard the Chinese government’s moves against Uyghurs in Xinjiang province as a clear example of cultural aggression.

Conducting diplomacy with a megaphone and urging China to accept the universality of human rights will not be effective to manage Beijing’s human rights violations and cultural aggression, and looking to economic sanctions every time something happens can backfire.

In particular, if we expect to compete with China in the Indo-Pacific region for years to come, I believe we should be more careful in tackling human rights issues in Southeast Asia.

Countries like Myanmar, Thailand, the Philippines, Malaysia, Indonesia and Vietnam are all going through a long trial-and-error process of democratization, taking steps forward and then swinging back.

If we brandish criticism and economic sanctions under generic views on human rights issues, these nations might approach China to seek protection and there could be a danger of a domino effect occurring following the coup in Myanmar.

Japan’s role as a U.S. ally should be to quietly remind the U.S. of such possibilities.

Tokyo and Washington, while sharing common objectives, should be aware that their ways of approaching goals differ. One route they can take is to divide roles and responsibilities between them after holding negotiations.

But we cannot be optimistic about trade issues either. Though U.S. President Donald Trump’s administration is over, there remain doubts over whether the U.S. will again support the free and fair multilateral trade system.

After the U.S. withdrew from the Trans-Pacific Partnership free trade agreement, Japan took the lead with the remaining members who signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). I think there is extremely little chance of the U.S. returning to the framework.

Moreover, as China has shown interest in joining the CPTPP, and as the framework is increasing its presence geopolitically, there is an extremely high risk of the framework consequently leading to a divide between Japan and the U.S., even if that might not be what China was aiming for.

Japan and the U.S. must avoid such a situation, but the Biden administration has not yet shown a realistic trade policy. Even with the new administration in place, the U.S. only has protectionist foreign and trade policies that benefits the nation’s middle class.

In a process to create a trade agreement, a sense of community is formed among countries taking part in the negotiations, and that becomes a driving force to sign the agreement, working to strengthen ties among them.

The U.S. must be feeling uneasy about not being a part of this process, and the Biden administration is under pressure to come up with a policy as soon as possible on how to get involved in the process of creating a trade framework in the Indo-Pacific region.

If the U.S. fails to do so, there is a danger of the Free and Open Indo-Pacific strategy breaking apart.

The joint statement by Suga and Biden said that the two nations will recommit themselves to achieving prosperity in the Indo-Pacific region, maintaining a free and fair economic order and cooperating with those who share in these objectives.

But the Biden administration has failed to show how its trade policies differ from those of the Trump administration or under what narratives it plans to conduct trade negotiations.


Japan’s initiative

YH: Japan’s challenge is that it can no longer sufficiently deal with its alliance or relations with the U.S. just by extending the traditional way of thinking.

Japan’s basic stance has mostly been to follow the strategy put together by the U.S.

But it is important to note that under the previous administration of Shinzo Abe, a new format of Japan-U.S. relations emerged, as seen in the case of the Free and Open Indo-Pacific strategy in which Japan presented a basic vision and the U.S. responded.

The issue at stake is whether Japan can act more on its own initiative. It is essential for Japan to think about how to present its China policy to the U.S. so it can persuade and gain consensus.

In other words, it is natural for Japan and the U.S. to have a different approach to China, and they need to accommodate their differences to complement each other to reach a common goal.

In order to do so, Japan needs to make efforts in a way that is different from before.

Regarding defense issues, the challenge for Japan is whether it can quickly and appropriately respond in the event of a serious crisis, including a possible contingency over Taiwan, and also show a deterrent effective in preventing such contingencies.

The new security laws took effect during the Abe administration and the key concept of Japan’s defense strategy changed from the Basic Defense Force Concept to the Dynamic Defense Capability, then to the Dynamic Joint Defense Force.

The legislation also allowed the limited exercise of collective self-defense, which means Japan will have to respond jointly with the U.S. in the event of contingencies.

In such a situation, I doubt Japan will be seen by the U.S. as making adequate efforts to defend itself, considering defense expenditures account for only 1% of Japan’s gross domestic product.

Whether Japan’s national security policy has evolved will be tested if a contingency regarding Taiwan becomes a reality.

It will become inevitable for Japan to play a significant role in such a situation, because Japan, due to its proximity to the Taiwan Strait, will be more seriously affected in terms of national security than the U.S.

If Japan faces a crisis, the question will be whether the nation can work with the U.S. proactively, instead of merely supporting Washington.


Belt and Road

From an economic viewpoint, the issue at hand is whether Japan and the U.S., or democracies as a whole, can build an economic cooperation and assistance framework that can counter China’s strong push for its Belt and Road Initiative, which sees Beijing sponsoring infrastructure projects to create a massive economic zone in the Eurasian continent.

However, the Trump administration did not have a logic to counter this, and the absence of the U.S. in the region generated not only a power vacuum but also a “vision vacuum.”

The Biden administration is apparently trying to fill this void.

But in reality, as can be seen in vaccine diplomacy for example, while China is actively providing other countries with China-made vaccines, liberal democracies are scrambling to obtain scarce vaccines for their own people.

The Biden administration, feeling threatened by China’s moves, is focusing on its alliance with Japan.

One sticking point for the alliance is the U.S. leaning toward state capitalism.

While the Trump administration tried to keep China in check by continuing to stress the need to decouple, the value of trade between the two countries increased.

Meanwhile, the Biden administration is giving up the ideology of a small government and unveiled a $2 trillion economic stimulus package to take the lead in efforts to overcome the COVID-19 crisis.

The package — just like China’s fiscal stimulus package introduced with strategic intent following the 2008 global financial crisis — is clearly not a neutral injection of funds, but a program with political or strategic intent.

It is easy to imagine that the U.S. stimulus is intended to counter the Belt and Road Initiative politically and strategically, but if the U.S. is implementing economic policies with certain intentions, Japan will be put in a difficult position.

Under Abe, Japan showed support for Beijing’s initiative under certain conditions after June 2017, a clear step away from the U.S. stance.

Should Japan continue to support the initiative and strengthen economic cooperation with China or shift away from the framework and focus on cooperation among the liberal democracies?

If Japan is to keep on backing the initiative, it has to win the U.S.’ understanding by explaining the significance of Japan-China economic cooperation, but that will definitely be a challenge.

There should never be any distrust formed between Japan and the U.S. concerning their China policy.


Caught in the middle

The same can be said about human rights diplomacy.

If Japan shies away from strongly condemning China’s human rights violations or imposing sanctions because of its economic ties with China or differences in legal systems, it should have a strategy to reasonably persuade the international community to understand the logic of its approach.

In deepening the Japan-U.S. alliance, not having an entirely similar policy approach would not be a problem if they share the same goals.

When differences in approach emerge between Japan and the U.S. in the fields of military, economy or human rights, Tokyo should not easily give up its own policy approach but should strive to build a strong argument so that it can win Washington’s understanding.

Otherwise, Japan will end up torn between the U.S. and China, finding itself caught in the middle. And such estrangement between Japan and the U.S. is exactly what China is strategically seeking.


The views expressed in this API Geoeconomic Briefing do not necessarily reflect those of the API, the API Institute of Geoeconomic Studies or any other organizations to which the author belongs.