Clouds Over Sunny Japan-US Ties

If there was any doubt about Japan no longer being the arch-enemy of the U.S. economy, it was made abundantly clear at the latest summit meeting between U.S. President Joe Biden and Japanese Prime Minister Kishida Fumio. At their White House meeting in January, the two leaders focused on the issues that unite them, from a commitment to a free and open Indo-Pacific to support for both Ukraine and Taiwan. When it came to the economy, meanwhile, the two leaders focused on their shared concerns about technology competition as well as economic coercion by China, with no mention of trade imbalances or opening up of markets.

Amid the forceful rhetoric of unity between the world’s biggest and third-largest economies, many have publicly declared that Japan-U.S. relations have never been as strong as they are now.

Such sunny optimism, however, should be studied carefully. Trade imbalances certainly no longer threaten relations between Tokyo and Washington, yet the global economy is veering on a path of greater protectionism, especially in the United States. The fact that Washington used to chide Japan for its industrial policy only three decades ago, and now is adopting its own industrial policies to promote advanced technology is certainly not lost on Japanese officials and voters alike.

The latest summit meeting between the two countries highlighted their shared concerns about the growth risks both the United States and Japan face, but finding a way for the two sides to cooperate closely to address those shared challenges won’t be easy.

One potential source of tension is the difference between Tokyo and Washington in assessing the China threat, not least in their respective end goals in defining relations with the world’s second-largest economy. While both Tokyo and Washington agree that Beijing’s coercive actions threatens global stability, the United States sees dynamics with China largely through the prism of confrontation. As confronting China remains one of the few issues that unites an increasingly divided United States, highlighting the threat the country poses to U.S. competitiveness has shaped public policy. In fact, fear of China has been a driving force for Washington to adopt a de facto industrial policy to invest more aggressively in its domestic technology capabilities and to win against Beijing.

Tokyo too has been alarmed and threatened by China’s coercive actions. In fact, Japan was one of the first countries in the world to be faced with Chinese economic coercion when Beijing imposed restrictions on rare earth exports in 2010 in response to a spat centered on disputed islands in the South China Sea. In the decade-plus since then, South Korea, Australia, Taiwan, Norway, Lithuania, and other governments all faced the wrath of China as Beijing leveraged its economic dominance to take punitive action following perceived political transgressions.

Outrage toward China’s weaponization of its trade ties is now shared across continents. Most recently, the COVID-19 pandemic heightened awareness of vulnerabilities posed by excess dependence on China for goods, which has only furthered international outrage toward Beijing’s actions.

Yet for Japan and for Asia at large, the drive to declare victory over China is tepid. The fact remains that China is Asia’s single largest trading partner; for countries in the region, continued strong trade relations with China are not only inevitable, but desirable. At the same time, the geographic realities mean that China is not only far closer to Japan than the United States, but it is also a territorial behemoth in the region that can hardly be ignored.

Moreover, dominating China technologically in the future is not a political vision that has garnered much support among Japanese voters, nor has it been ballyhooed among its political leadership. As a result, Japan is likely to press for a much more pragmatic approach to dealing with the China threat moving forward, and is less inclined to push for any ideological win. Instead, Tokyo is likely to focus more on taking a two-pronged approach in dealing with Beijing by separating its trade relations with China from that of the United States and other advanced economies, especially when it comes to technology-focused goods and services. That, of course, would be a costly undertaking and the antithesis of pre-COVID supply chain efficiency.

Still, as Japan and the United States grapple with how to move forward in dealing with China’s economic coercion, it is clear that the rules and systems that have been in place to date do not reflect new realities. The goal of both countries will be to ensure their respective competitiveness, and the two sides are likely to diverge on how to use the China challenge to achieve that end.