The Institute of Geoeconomics (Kazuto Suzuki, Director, Institute of Geoeconomics) is pleased to announce that recorded audio of the Geoeconomic Agenda, “The Past, Present, and Future of Japan’s Geoeconomic Leadership,” and its transcript are now available. Geoeconomic Agenda is a new Pacific-centric, globally-minded podcast that investigates the connections between economics, geopolitics, business, and society. Hosted by Paul Nadeau, Geoeconomic Agenda will feature interviews with guests from across the Asia-Pacific region and beyond, from the policy world, academia, business, and more.

Transcript

December 15, 2023 (auto-generated by otter.ai)

Paul Nadeau 00:07
Hello and welcome to this episode of the geoeconomic agenda, a podcast from the Institute for geoeconomics of the Asia Pacific initiative in Tokyo that investigates the connections between economics, politics, business and society. I’m your host, Paul Neto. And I’m a visiting researcher here at the IOG. In a moment, we’ll sit down with Dr. Mireya Solis of the Brookings Institution and author of “Japan’s quiet leadership, reshaping the Indo-Pacific”. But first, here are the latest developments from the world of geoeconomics. It appears the United States is stepping back from talks on the trade pillar in the Indo-Pacific Economic Framework or IPEF putting the future of the entire agreement in doubt. IPEF is the Biden administration’s proposal for US economic engagement with the Indo-Pacific region. Given the political difficulty of joining the Trans Pacific Partnership, IPEF consists of four pillars comprised of a trade pillar, a supply chain, resiliency pillar, an infrastructure and clean energy pillar and attacks and anti corruption pillar. The negotiating partners have made progress on three of the four pillars and had gathered in San Francisco this month, to finalize the trade pillar, which will effectively complete the agreement. It now appears that it won’t be possible to reach an agreement on the trade pillar, following Senator Sherrod Brown’s request that the pillar be dropped altogether due to the lack of enforceable labor provisions in IPEF. Brown is competing for reelection as a Democrat in the state that supported Trump in the last two elections, and many in the Biden administration believe that those losses are at least partly due to Democrats embrace of trade liberalisation. For the Biden administration, the hope is that they can support Brown’s re election campaign by taking trade liberalisation off the table as a potential issue. Additionally, US Trade Representative Katherine Tai said last month that the United States is withdrawing its support for key US digital trade proposals including those in IPEF in order to allow Congress an opportunity to enact stronger regulations on technology. This has led to disagreement in the US government over the future of digital trade policy. Given that Ambassador Tai did not suggest proposals for new positions or offer a timeline for when new proposals may be made available. Politico’s reported that the Commerce Department and State Department as well as some voices in Congress have concerns with the apparent pivot and lack of clarity going forward. At the Asia Pacific Economic Cooperation or APEC summit in San Francisco from November 11 to 17th, 21 Asia Pacific economies released a statement calling for reform of the World Trade Organization or WTO. The joint statement called for necessary reform to improve all of the WTO has functions so that members can better achieve the WTO’s foundational objectives and address existing and emerging global trade challenges. There was also an agreement on the San Francisco principles that would, as it says, integrate inclusivity and sustainability into trade and investment policy, a non-binding agreement to support cooperation on communication, information sharing and environmental sustainability. On November 15th, China and Japan announced an agreement to establish a dialogue channel on export controls. The goal is to hold annual director level talks between the two countries on controls like China’s restrictions on the export of graphite and germanium, in order to avoid possible escalation. Finally, the Japanese government supported chipmaker Rapidus announced that it will open a base in Silicon Valley by the end of March 2024 to produce two nanometer chips in collaboration with IBM. The plan was announced at a meeting in San Francisco organized by the Japanese government to assemble semiconductor and AI firms to discuss supply chain resiliency and increasing supply capacity of critical technologies. Rapidus and the University of Tokyo also announced they would partner with French Research Institute Leti on the development of one nanometre chips. Such chips would boost computer efficiency by 10 to 20% and are expected to enter the market in the early 2030s. This is the geoeconomics agenda with Paul Nadeau. Okay, today I’m sitting down with Dr. Mireya Solis of the Brookings Institution and the author of “Japan’s quiet leadership” about how Japan’s economic statecraft has helped shape the future of the region in the Indo-Pacific Dr. Solis Mireya, thank you for taking the time to talk with us today.

Mireya Solis 04:50
Thank you very much. It’s a pleasure to be on your podcast Paul.

Paul Nadeau 04:53
So let’s start with the book. Can you summarize the findings what led you to write This in the first place, what you found as you were working on this?

Mireya Solis 05:03
Yes, of course. So this book is a deep dive what has happened during the so-called “lost decades” in Japan, I feel that that label has a grain of truth. But actually, we are overusing it to the extent that people assume that Japan has experienced across the board stagnation, whereas in fact, a lot has happened inside Japan and outside Japan. And the book, you know, tracks depends adjustment to economic globalization, the evolution of its politics, why Japan now has greater leadership at the Prime Minister level, and also how Japan is coping with the challenges overseas by developing a far more robust and proactive economic, foreign economic policy, but also a security policy that is innovating and trying to address the current environment.

Paul Nadeau 05:53
So can you give us a few examples from the book? You know, I think one of the things that people I mean, at least in this in you know, we’re sitting in Tokyo right now, people will point to Japan’s leadership in reviving the Trans Pacific Partnership after Trump withdrew in 2017. Can you talk about how Japan was able to revive that agreement to what it is today?

Mireya Solis 06:18
Sure Paul, and this goes to the heart of the book’s argument. In essence, I make the case that sure enough, Japan has experienced the relative decline because of the low economy, demographic trends, the military buildup around it. But that Japan has found a way to cope with some of these challenges by developing what I call a network strategy, or connectivity strategy. And the idea is that by forming these partnerships, by embarking on rulemaking, by becoming a champion of economic integration and security cooperation, Japan was able to punch above its weight. And in my mind, Japan carried steel in developing these more proactive foreign policy with the Trans Pacific Partnership, which as you remember, had a very checkered history in Japan, it took a long time for Japan to get to the TPP. And because it was triggering all the domestic sensitivities and in particular, the agricultural lobby was dead set against Japan joining the TPP, because it felt that it would be very seriously affected if Japan were to open its market to the United States to Canada, Australia, big agricultural exporters. But this began to change when Prime Minister Abe came into office the second time. And I think that he basically identified TPP as a tool to bring credibility to his economic reform agenda of Abenomics. But also think about how you deepen the relation with the United States, how you go from trade being an item of bilateral friction, and being a barrier to what Japan could do overseas, and actually project outward project forward and use TPP membership as a way in which Japan can now play in the big leagues. And there’s a couple of speeches that the Prime Minister gave, that I think identified this greater level of ambition, and both the pursuit of economic and foreign policy objectives. Now, how was he able to do when others had not been able to do before, that’s why you need to dig the evolution of the domestic political economy. And what you find is a number of factors. One is at the cultural lobby lost clout, you know, they were not as powerful in mobilizing the boat. And there were other economic interests that were very interested in Japan joining these trade agreements, because Japan was lagging behind every other country was negotiating right and left. So, Japanese businesses were being discriminated against by not being part of this network of free trade agreements. And that was one factor. But the other factor is that Prime Minister Abe was able to capitalize on a number of administrative and political reforms that had strengthened the Prime Minister’s office, and he was able then to rein in the different warring bureaucracies, and for the first time, create a unified body to negotiate with greater depth and ambition, and there was a TPP headquarters. So, I think it was very important for the Prime Minister to bring Japan to, you know, Japan was the last member to join. So, I think it almost missed the window. And you know, things changed because of its ability to get in just at the last opportunity.

Paul Nadeau 09:45
But it’s also not just TPP. Japan’s also been active in the RCEP negotiations, the Regional Comprehensive Economic Partnership and hoping I got that acronym correct. And other similar agreements in the region. So this isn’t just TPP, this seems to be a cornerstone of Japan’s entire strategy, foreign policy toward the region is that fair to say?

Mireya Solis 10:10
I think it’s fair to say so TPP showed that different Japan to the world, one that could actually undertake very substantive tariff liberalization, even in sensitive sectors. But it also showed Japan as a rule maker on trade and investment disciplines. And these open then the way for other very large trade agreements, the Japan-EU trade agreement is also high ambition undertaking. And then the Regional Comprehensive Economic Partnership that you mentioned, Paul, that one doesn’t have the same standard as a CPTPP. But it does have very significant coverage just because of the sheer size of the economies and does have some chapters that are interesting, not as ambitious, but nevertheless does have a digital economy, and a partnership chapter. And it’s not only what it did in trade, but it’s also that, you know, Japan had been in the business of providing economic assistance and infrastructure finance for decades. But for a long time that was perceived mostly as a mercantilist project, try to advance the very narrow economic interest of a specific Japanese industries. And we also saw a revival of infrastructure finance flourish with strategic purposes. And a lot of these had to do with the competition with China, and the launch of the Belt and Road. And that’s when the administration came with this label of the Partnership for quality infrastructure, with the idea that Japan will be providing infrastructure finance with a different set of principles and standards. It was not a zero sum competition with China. But it was providing an alternative so that developing Asia would not only have to rely on one source of financing, and that was very much welcomed across the region.

Paul Nadeau 11:58
The point about zero sum, avoiding zero sum competition is interesting because one of the features that I think people think about when they think about economic statecraft are the coercive features, the the sanctions, the export controls, the financial controls this and this, and that, when I read the, you know, economic statecraft initiatives in the US covered by the US press, almost inevitably, there’s a reference about how this is going to contain China or constrain China. But that doesn’t quite seem to be what Japan is doing. You don’t, to me, at least you don’t seem to hear nearly as much in Japan about economic controls or sanctions, although that’s part of it. Comparing and contrasting Japan’s approach and the US approach, or maybe the Western European approach, however, you want to frame it, comparing those two approaches. One seems to be coercive, and one seems to be more proactive, more rule building. So two questions, one, is that fair? Is that a fair characterization? And two? Why is that?

Mireya Solis 13:11
Yeah, well, the way I would describe it, or the way I would frame it is, to me economic statecraft means the use of economic tools to achieve larger foreign policy objectives. So it doesn’t have to be coercive by nature, although that’s a very common use of the term. And we know that getting into definitions can be going down the rabbit hole. But I think of it as a more neutral term. When you have these economic tools at your disposal, and you’re thinking about grand strategy or foreign policy objectives, pursuing the national interest more broadly, and within that umbrella of different economic tools that you can use, then I make a distinction between whether you’re trying to play defensive. And that’s what I think mostly what the United States is doing by linking economics with national security. And the effort there, the thrust of the effort is to reduce vulnerabilities that come from economic interdependence. And think about how you can use your control over choke points in the supply chain as a source of leverage. So this is mostly seen through a national security lens. And you ask why the United States does that, in such a lopsided manner. And I think it’s because first of all, there’s been an awakening in the United States about the risks of engaging very broadly with China, and then what happens when there are cases of over dependence. And also because the United States unfortunately, because of its own domestic political constraints, cannot articulate a compelling economic engagement strategy and that would be trade policy, for example, that has become such a taboo word in the United States. Whereas in Japan and I think that Japan has a more balanced portfolio when it thinks about the objectives and the tools of economic statecraft, because sure enough, Japan is in many ways on the same wavelength with the United States when it thinks about how to close vulnerabilities how to avoid over dependence, how to boost its control over important choke points, that there’s a term that comes in Japanese documents, one of a strategic indispensability. That’s something that we inherited a few years ago and goes to that marriage of economics and security. So that’s very much very vibrant in Japan. I think that that’s in and of itself economic statecraft that it’s also experiencing quite a lot of growth. And there’s a lot happening there. But Japan does still have a very substantive track record from our previous conversation just a few minutes ago, that it’s at the center of these mega trade agreements in the region. And now it has this shops in terms of being able to negotiate effectively the new set of rules on trade and investment. Having said that, Paul, I do think that Japan has done well so far, but it’s getting harder. And it’s getting harder, because it is good to have both sides of economic statecraft, but there’s tension between promoting economic integration and hedging against the risks of it. Trying to develop a club of trusted partners. And those are the ones who you talk to about economic security and the in these very ambitious network power trying to create a lot of linkages with all kinds of countries. And I think we’re witnessing this balancing act going on right now, in Tokyo.

Paul Nadeau 16:53
It’s interesting that you mentioned that balancing act, because I think you’re absolutely right. Japan has experience in economic coercion and developing tools to build in supply chain resiliency, going back at least to the rare earths “embargo” back in what was it 2010, correct? So Japan has been thinking about this for a long time. And yet, as you pointed out, they have been able to balance, to a degree, this drive towards economic security, this resiliency, while also engaging in systems building, rule-making that kind of thing, you don’t think that that balance can last much longer? Is that what you’re saying?

Mireya Solis 17:39
Well, I think that there going to be trade offs, right? Because I do believe Japan is committed multilateralist, I do believe Japan is, you know, pushing as much as it can to sustain a rules-based order. But it’s also very true that when governments invoke national security, to avoid, you know, the constraints of existing rules in the WTO, or in other endeavors, that ends up undermining, eroding the rules based economic order. So you don’t want to invoke national security all the time. You don’t want to do it willy nilly. And ideally, there can be some principles and rules that also guide the invocation of that national security. But you have to be aware that some governments are not going to be that disciplined. And also, you know that what is national security can be in the eyes of the beholder, right, you remember when the Trump administration began to use the 232 of US trade laws that allowed the United States to raise tariffs invoking the national security rationale, and he did it with the steel tariffs. It produced a report to try to justify the action. At the end of the day, you did not find a strong national security rationale, but it was about giving a lifeline, giving support, to politically powerful groups. So that’s always been the concern. The architects of the WTO knew this very well, when they drafted the article 21 of the then GATT and then later on WTO. And the idea is, again, you cannot if you want to, you know protect the rules based economic system, there has to be some discipline on how you invoke the national security principle. I think Japan has been principled and has been restrained. But we’re operating in an environment where that invocation is coming more naturally more often. And it’s going to eventually create, it’s already created a huge challenge to the international multilateral system of trade.

Paul Nadeau 19:52
So let’s use that as a jumping off point to talk about one of the big, I guess you could call it a big development and in global economics over the past week when the US basically, United States hit the pause button on IPEF, the Indo-Pacific Economic Framework. Now for those of you who haven’t been following IPEF developments, this was basically the Biden administration’s answer to TPP. Recognizing that it’s not going to get ratification through Congress, the Biden ministration, hasn’t even tried to do trade promotion authority, which would help facilitate ratification. And so this was, you guess you could call it the next best thing, or you can call it whatever you’d like. But apparently, according to what we’ve read over the past week, we’re recording on November 21st. Even that’s not attainable. And given that we’re talking about a current event, and everything is kind of fluid. I have read a couple of reports saying that Japan is going to try to, you know, keep this boat afloat as much as they can. So first of all, what do you think about the US with, you know, regarding IPEF, and just its approach to economic strategy in general, vis-a-vis the Indo-Pacific. Is the US completely out of the game? And two, can Japan refloat this thing, similar to what it did with the TPP? I mean, this is all speculative. I know. So do the best you can, but I think this points to where the tension, where Japan, where the region is heading on these issues.

Mireya Solis 21:39
Thank you, Paul. Those are excellent questions. Let me sort of break down my answer in at least I think, three parts. So what happened last week? You know, even before we went into the APEC leaders week, there was an expectation that three of the pillars would close. But that trade pillar would not be fully ready, but that there will be progress. And that perhaps it will be possible to you know, talk about some early harvest. And then what actually happened is that, indeed, the IPEF members were able to sign the pillar on the supply chain. And were able to finalize the other two pillars on clean energy, and anti-corruption and taxation. But nothing was able to be released or announced on the trade pillar, which is really a blow because that’s where all the eyes have always been. The other pillars can be interesting. Sure, they can be helpful. They’re mostly aspirational. They’re mostly soft cooperation language. And the supply chain pillar in particular might be interesting. But we don’t know if we, you know, at the time of urgency crisis, is is really going to create what is the expectation of a better coordination, more information sharing and even helping one another that we don’t know. Because that supply chain pillar, what they did is that basically the outcome at this point is that committees will be created and they will a graft plan. So, you know, we don’t know what’s going to come out of that, but but a trade biller is I think, where the crux of the matter is because the stakes are very high. That’s where the labor standards, environmental standards and digital rules are held. And that’s under the jurisdiction of the USTR. And when two things happen, I think that explain why the trade pillar did not have a good showing so that it wouldn’t have even an early harvest announcement. One is that, you know, when the IPEF when the Biden administration announced the IPEF it, proposed, it posed that it could achieve a high level negotiation on labor standards, really ambitious binding labor standards, without putting on table market access. So this was always a proposition that I thought was very tenuous. Yeah, I mean, it was doubtful that you could get more with less, because they want the labor standards that went beyond what was in TPP, offering fewer benefits. So it’s very difficult to think that that could happen. And I think what we saw is that yeah, did not happen because countries in developing nations in in the Indo-Pacific, I say, why are we going to be subjected to these kinds of obligation if there is nothing in terms of market access? So that was one, I think, issue that just was very clear from last week. But the other one is, that just in the past few weeks, the United States, you know pivoted very sharply its position on digital economy rules. At first, this was announced that the United States in the WTO e-commerce negotiations is no longer supporting the talks. When it comes to freedom of data flows when it comes on the protection of source code, and the ban of data localization. These have been the pillars of US digital trade policy. And the United States is saying no, we’re not going to support that anymore. And the hit the pause button on the IPEF as well. And this has to do with the fact I think, bottom line, you cannot negotiate an agreement when you yourself don’t have a domestic consensus on what you want to negotiate. And, you know, there’s been a lot of pushback here in the US for that kind of a provision, but there’s also a lot of support. And if I believe that it’s possible to have this, you know, public interest, precautionary principle and freedom of data flows as part of the same trade agreement, I think you can reconcile both objectives. But the Biden administration decided it does not want to go there. And I think that explains why we don’t have even any kind of result at this moment for IPEF. Now, I think another part of your question is, can the US have no game? And I think it’s not this game. I mean, I think that trade agreements is something that Biden administration is critical about, they’re not going to pursue neath anything that has started realisation. But there are other ways I think, in which the United States still has substantial economic influence, that has to do first of all, with the strength of the US economy, particularly at a time when China is stumbling. And also have to do with the competitiveness of the American industry. You know, American companies are in their [own] league when it comes to the design segment of the semiconductor industry. The American companies invest very heavily in the Indo-Pacific so again, these are strong suits that also make the American opposition strong in the region, even though they’re not in the business anymore. The United States, you know, thinking about comprehensive high ambition trade agreements. And your last question here, Paul was can Japan refloat the IPEF? Can it fo the kind of rescue operation it did when it did the CPTPP? I think it’s hard. I think it’s hard. And there are a couple of reasons. One is that Japan has been supporting IPEF as Plan B. It has never been Plan A for Tokyo. And Tokyo has been very explicit and they have told Washington counterparts time and time again, every meeting I said, I can tell you this happens, where, you know, they make the case that it’s better for the United States to be in the CPTPP for a number of reasons, for economic engagement, for trying to avoid over dependence on China for trying to offer rules that are you know, ambitious and high standard. But the US does not want to consider that. And therefore Japan went along with IPEF, has been supported [it] when IPEF was launched in Tokyo to try and provide advice about having a very inclusive membership. But I don’t think that’s where Japan’s central interest is. That’s one reason. The other one is the IPEF is very much seen as a US-led undertaking. And if the US cannot lead in the trade pillar, watered down as it is, then that takes away a lot of incentives. Especially because the United States is going to an election, presidential election year next year. So you know, CPTPP, and IPEF are very different. And as you mentioned, IPEF does not require congressional ratification. But there are some parallels, I think, between what happened in TPP, one point on an IPEF in the sense that the United States had a very abrupt redirection. You know, Trump left TPP, the Biden administration when it’s not pushing for digital rules, the way that the US has traditionally done, and then this important economic initiatives are going to be supposedly finalized they come to the finish line in a presidential election year in the United States. Well, we know it’s going to be very, very loaded and whether the President is going to have, you know, the desire to put political capital in such an initiative is not clear at all. So I don’t think that there’s going to be a revival. I think that if IPEF becomes something of substance, it largely now it’s for the US to make the push and certainly deliver something that the other IPEF members would like to see on the trade pillar, that’s going to be I think, the litmus test.

Paul Nadeau 30:03
Well, thank you. This has been a fascinating discussion. And thank you so much for joining us today. This is definitely going to be a space to watch and your book, Japan’s quiet leadership from the Brookings Institution is definitely a topic that I think readers and observers of this space are going to benefit from very, very much. So I strongly recommend it to everyone listening. And once again, thank you for joining us today.

Mireya Solis 30:29
It was my great pleasure. Thank you very much.

Paul Nadeau 30:31
Thank you. This is the geoeconomics agenda, with Paul Nadeau. Finally, Thanksgiving dinner, which Americans celebrated last week is known for a few specific foods that are supposed to appear at every table during the holiday.Turkey potatoes, green beans, corn, cranberry sauce, pumpkin pie, and maybe sweet potatoes if you’re from the south. What all these foods have in common is that they’re all native to the Americans. Turkeys, corn and pumpkins for pie were first domesticated in Mexico. potatoes were first cultivated in what’s now Peru. Green beans and sweet potatoes were domesticated in Central and South America, and cranberries are native to New England. Now most of these foods wouldn’t have appeared on the table of the first Thanksgiving. As most Americans know, the first Thanksgiving dinner was celebrated over three days in 1621 in Plymouth colony and what’s now Massachusetts, by the survivors of the Mayflower expedition who survived their first winter in America with the help of the native Wampanoag tribe, who joined them for the celebration. The dinner would have looked much different from what Americans know now and featured fish like eel, cod and bass, wild ducks, venison and more. The only foods that would have looked familiar would be the wild turkeys corn and probably cranberries, but everything naturally consisted of what could have been harvested locally. Many of the other foods made their way to the Thanksgiving table more circuitously usually via England or Spain. Domestic turkeys and potatoes were brought back to England, where they were further domesticated and adapted to European climates and pallets, and then made their way back to the Americas for consumption when European settlement in North America intensifies. It wasn’t until after World War Two when intensive production of turkeys and refrigeration drove down the price of Turkey making what was once a luxury food something within reach for the common consumer. And the historic connotation of Turkeys with Thanksgiving finally became a staple of Thanksgiving dinner. Even if American Thanksgiving is truly a Pan American meal, it still wouldn’t have been possible without globalization. That’s all for this episode, but stay tuned for more on the way. Until then we want to know what you want to hear about as well as take your questions for our show. So send us an email at geoeconomicagenda@ihj.global. Be sure to like, rate, subscrive, wherever you get your podcasts. Tell your friends, and most of all, keep listening. Thanks for joining us, thanks to the team at API for making this happen, and we’ll talk to you next time.

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The views expressed in the IOG Geoeconomic Insights do not necessarily reflect those of IOG or any other organizations to which the speakers belong.