Japan’s geo-economic strategy: implementation

Abstract

‘In foreign affairs, Japan is often thought of as a big country acting like a small one. Yet that is to miss the significance, range and effectiveness of Japan’s economic statecraft, in which the country not only acts its true size but also does so with much more autonomy and agency than it does in classic diplomacy. Yuka Koshino and Robert Ward shine a truly illuminating light on how Japan thinks and behaves as a geo-economic actor, whether through trade, investment, aid, rule-setting or, crucially, technology. This Adelphi book deserves to be widely read, for it adds greatly to our understanding of a much neglected and under-appreciated aspect of Japanese strategy.’

Bill Emmott, Chairman of the IISS Trustees; Chairman of the Japan Society of the UK; and author of Japan’s Far More Female Future (Oxford University Press, 2020)

‘Groundbreaking work and a penetrating analysis of the geo-economic challenges facing Japan, a frontline country in the age of US–China rivalry and economic statecraft.’

Dr Funabashi Yoichi, Chairman of Asia Pacific Initiative

Geo-economic strategy – deploying economic instruments to secure foreign-policy aims and to project power – has long been a key element of statecraft. In recent years it has acquired even greater salience, given China’s growing antagonism with the United States and the willingness of both Beijing and Washington to wield economic power in their confrontation. This trend has particular significance for Japan, due to its often tense political relationship with China, which remains its largest trading partner. While Japan’s post-war geo-economic performance often failed to match its status as one of the world’s largest economies, more recently Tokyo has demonstrated increased geo-economic agency and effectiveness.

In this Adelphi book, Yuka Koshino and Robert Ward draw on multiple disciplines – including economics, political economy, foreign policy and security policy – and interviews with key policymakers to examine Japan’s geo-economic power in the context of great-power competition between the US and China. They examine Japan’s previous underperformance, how Tokyo’s understanding of geo-economics has evolved and, given constraints on its national power projection, what actions Japan might feasibly take to become a more effective geo-economic actor. Their conclusions will be of direct interest not only for all those concerned with Japanese grand strategy and the Asia-Pacific, but also for those middle powers seeking to navigate great-power competition in the coming decades.

Notes

1 Kosaka, Kaiyō Kokka Nihon no Kōsō [Japan’s Vision as a Maritime Country] (Tokyo: Chūokōron-Shinsha, 2016).

2 Ibid., p. 209.

3 Ibid., p. 232.

4 Ibid., authors’ translation.

5 Ibid., p. 233, authors’ translation.

6 China’s defence spending as a percentage of GDP is taken from The Military Balance 2021 (Abingdon: Routledge for the IISS, 2021), p. 518. The estimate of Soviet defence spending relative to the size of its economy is taken from David Fewtrell, The Soviet Economic Crisis: Prospects for the Military and the Consumer, Adelphi Papers, no. 186 (London: International Institute for Strategic Studies, 1983), p. 9.

7 See, for example, Stella-maris Ewudolu, ‘Survey: Asean Confidence in US Plummets Under Trump’, Asean News Today, 12 May 2017, https://aseannewstoday.com/2017/surveyasean-confidence-in-us-plummets-under-trump/.

8 According to a survey poll taken in late 2020 and early 2021 by the ISEAS– Yusof Ishak Institute, Japan was the most trusted strategic partner ‘in the hedging game against US–China rivalry’ with 67% expressing ‘confidence’. This compared with China, which had a ‘confidence’ score of just 17%. Sharon Seah et al., The State of Southeast Asia: 2021 (Singapore: ISEAS–Yusof Ishak Institute, 2021), p. 5, https://www.iseas.edu.sg/wp-content/uploads/2021/01/The-State-of-SEA-2021-v2.pdf.

9 See, for example, Mireya Solís, ‘China, Japan, and the Art of Economic State-craft’, Brookings Institute, February 2020, https://www.brookings.edu/wp-content/uploads/2020/02/FP_202002_china_japan_solis.pdf.

10 Ben Dooley and Makiko Inoue, ‘Japan Is Paying Firms to Make Things at Home. But China’s Pull Is Still Strong’, New York Times, 26 September 2020, https://www.nytimes.com/2020/09/26/business/japan-onshoring.html.

11 The decline in Japan’s working-age population in 2018–50 is forecast by the Economist Intelligence Unit at around 1% per year. This, together with only modest productivity growth, points to a potential longterm GDP growth rate for Japan of under 1%.

12 ‘The Japan–South Korea Rift’, IISS Strategic Comments, vol. 26, no. 1, January 2020, https://www.iiss.org/publications/strategic-comments/2020/japansouth-korea.

13 Kanehara, Anzenhoshō Senryaku [Security Strategy], p. 309.

14 Aurelia George Mulgan, The Abe Administration and the Rise of the Prime Ministerial Executive (Abingdon: Routledge, 2018), p. 11.

15 See Japan, Cabinet Office, ‘Brochure about the Council for Science, Technology and Innovation’, 2015, p. 1, https://www8.cao.go.jp/cstp/english/panhu/index.html, for details of CSTI’s origins.

16 Takenaka Harukata, Shushō Shihai Nihon Seiji no Henbō [Prime Minister’s Dominance: The Change in Japanese Politics] (Tokyo: Chuko Shinsha, 2006), pp. 58–60, 158–9.

17 As one observer caustically notes: ‘CSTI doesn’t do defence’. Interview with Kanehara Nobukatsu, July 2021.

18 See, for example, Ezra F. Vogel, Japan as Number One: Lessons for America (New York: Harper Colophon Books, 1979); Chalmers Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925–1975 (Stanford, CA: Stanford University Press, 1982); and Daniel Okimoto, Between MITI and the Market: Japanese Industrial Policy for High Technology (Stanford, CA: Stanford University Press, 1989).

19 Johnson, MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925– 1975, pp. 311–15.

20 Shiraishi Takashi, Umi no Teikoku – Ajia o Dō Kangaeurka [Maritime Empire: How to Think about Asia] (Tokyo: Chuko Shinsho, 2000), pp. 135–6.

21 For US use of Section 301 against Japan, see, for example, Jean Heilman Grier, ‘The Use of Section 301 to Open Japanese Markets to Foreign Firms’, North Carolina Journal of International Law and Commercial Regulation, vol. 17, no. 1, Winter 1992, https://core.ac.uk/download/pdf/151515955.pdf.

22 Mitsuru Obe, ‘Japan’s Chip Industry Squeezed as Foreign Governments Boost Investment’, Nikkei Asia, 10 September 2021, https://asia.nikkei.com/Business/Business-Spotlight/Japan-s-chip-industry-squeezed-as-foreign-governments-boost-investment.

23 See Bradley Richardson, Japanese Democracy: Power, Coordination, and Performance (New Haven, CT: Yale University Press, 1997), pp. 175–84, for a detailed discussion of the dynamics of Japan’s business–LDP relations. See also pp. 15–16 of the same volume for details on the changes and why they were implemented.

24 Interview with Dr Funabashi Yoichi, Chairman, Asia Pacific Initiative, July 2021. See also ‘Sōsai Sen ga Yurasu Habastu Seiji Tōwareru Seisaku no Kyūshinryoku’ [LDP Presidential Election Rocks Faction Politics, Questions Over Whether Policies Could Serve as Unifying Forces], Nihon Keizai Shimbun, 9 September 2021, https://www.nikkei.com/article/DGXZQO-DE07CTU0X00C21A9000000/, for a discussion of how the electoral reforms of the 1990s reduced the income of the LDP factions, partly reflecting declining contributions from business.

25 Steven K. Vogel, ‘Japan’s Information Technology Challenge’, in Dan Breznitz and John Zysman (eds), The Third Globalization: Can Wealthy Nations Stay Rich in the Twenty-first Century? (New York: Oxford University Press, 2013), pp. 350–72.

26 Ibid.

27 Kaori Kaneko and Takashi Umekawa, ‘Senior Japanese Lawmaker Accuses Toshiba Activists of Short-termism’, Reuters, 24 June 2021, https://www.reuters.com/business/japan-senior-lawmaker-hits-out-toshiba-share-holders-calls-monitoring-activists-2021-06-24/.

28 ‘Line Silently Exposed Japan User Data to China Affiliate’, Nikkei Asia, 17 March 2021, https://asia.nikkei.com/Business/Companies/Line-silently-exposed-Japan-user-data-to-China-affiliate.

29 See Chapter Two.

30 ‘Tencent Unit’s Stake in Rakuten Sparks Fears Over National Security’, Asahi Shimbun, 1 April 2021, https://www.asahi.com/ajw/articles/14322934.

31 Interview with Dr Funabashi Yoichi, Chairman, Asia Pacific Initiative, July 2021.

32 Ibid. See also Kanehara Nobukatsu, ‘“Anzenhoshō Sangyō Seisaku” no Ritsuan Isoge’ [Urgent Need to Craft ‘Industrial Policy for Security’], Sankei Shimbun, 30 June 2021, https://www.sankei.com/article/20210630-HAYYPSH3QRNAX-LONOFMGIMXCKQ/.

33 Kenichiro Sasae, Rethinking Japan– US Relations: An Analysis of the Relationship between Japan and the US and Implications for the Future of Their Security Alliance, Adelphi Papers, no. 292 (London: Brassey’s for the IISS, 1994), pp. 58–9. From a domestic political perspective, the role of ideology in the making and the implementation of Japan’s geo-economic strategy is not as consequential when compared with Japan’s defence and security strategies. In the realm of security, the LDP’s long-standing and dovish coalition partner, Komeito, served as a constraining factor for Abe’s push to reform Article 9 of the Japanese constitution. Komeito did not, however, stand in the way of Abe’s other security reforms. The party also supports the government’s method of using ‘economic diplomacy including economic security’ (keizai anzenhoshō o fukumu keizai gaikō nado no torikumi o susume) to promote the rules-based economic order through FOIP and regional trade agreements. See also Adam P. Liff and Ko Maeda, ‘Electoral Incentives, Policy Compromise, and Coalition Durability: Japan’s LDP–Komeito Government in a Mixed Electoral System’, Japanese Journal of Political Science, vol. 20, no. 1, March 2019, pp. 53–73, especially p. 56. Komeito entered into coalition with the LDP in 1999. The party has a close relationship with the Japanese lay-Buddhist organisation Soka Gakkai. See also Komeito, ‘2021 Lower House Election Manifesto’, 2021, pp. 62–4, https://www.komei.or.jp/special/shuin49/wp-content/uploads/manifesto2021.pdf.

34 Kanehara, Anzenhoshō Senryaku [Security Strategy], p. 226.

35 John Bowden, ‘Two Oil Tankers Reportedly Attacked Near Strait of Hormuz’, Hill, 13 June 2019, https://thehill.com/policy/international/448313-two-oil-tankers-attacked-near-strait-of-hormuz.

36 For protests against the security bills, see, for example, Shunsuke Murai and Yuka Koshino, ‘Thousands Gather Outside Diet in Heavy Rain for Last Chance to Protest Security Bills’, Japan Times, 17 September 2015, https://www.japantimes.co.jp/news/2015/09/17/national/thousands-gather-outside-diet-heavy-rain-last-chance-protest-security-bills/.

37 ‘Jieitai Chōto Haken 57% Hantai, Kyōdō Seron Chōsa, Yūshi Rengō Kōsō Meguri’ [57% Oppose Dispatching SDF to the Middle East, According to Kyodo’s Poll Survey on Coalition of the Willing], Tokyo Shimbun, 19 August 2019, https://www.tokyo-np.co.jp/article/15252.

38 ‘American Hypersonic Weapons Development Continues to Lag with Serious Problems – Congressional Research Service Report’, Military Watch Magazine, 18 July 2021, https://militarywatchmagazine.com/article/US-hypersonic-weapons-development-lags-CRS-report; and Katrina Manson, ‘US Has Already Lost AI Fight to China, Says Ex-Pentagon Software Chief’, Financial Times, 10 October 2021, https://www.ft.com/content/f939db9a-40af-4bd1-b67d-10492535f8e0.

39 Japan, Ministry of Defense, ‘Research & Development’, Acquisition, Technology & Logistics Agency, https://www.mod.go.jp/atla/en/policy/research_and_development.html.

40 Koshino, ‘Is Japan Ready for Civil–Military “Integration”?’.

41 Companies within Japan’s industrial conglomerates are essentially different firms with different CEOs. Thus, there are no spillover effects within the conglomerates.

42 ‘Report on Research Funding Aims to Improve Transparency’, Japan News, 20 March 2021, https://the-japan-news.com/news/article/0007241292.

43 Science Council of Japan, ‘Statement on Research for Military Security’, 24 March 2017, https://www.scj.go.jp/ja/info/kohyo/pdf/kohyo-23-s243-en.pdf.

44 Konuma Michiji, ‘Shoki jidai no Nihon Gakujutsu Kaigi to Gunji Kenkyū Mondai’ [Early Days of the Science Council of Japan and Issues around Military Relevant Research], July 2017, p. 14, https://www.jstage.jst.go.jp/article/tits/22/7/22_7_10/_pdf/-char/ja.

45 ‘Kitamura Shigeru (Zen Kokka Anzenhoshō Kyokuchō) “Keizai Anzenhoshō” to wa Nani ka?’ [Kitamura Shigeru, Former National Security Advisor, on ‘Economic Security’], Bungei Shunju Digital, 9 August 2021, https://bungeishunju.com/n/n8282e3583553.

46 Kanehara, Anzenhoshō Senryaku [Security Strategy], p. 93.

47 Japan’s Cabinet Office was established in 2001 as part of the broader reorganisation of government functions at the time. See Prime Minister of Japan and His Cabinet, ‘Cabinet Office Establishment Law (Law No. 89 of 1999) (Excerpt)’, 1999, https://japan.kantei.go.jp/policy/index/science/konkyo_e.html,foranEnglishtranslationofthelaw.

48 See Japan, Cabinet Office, ‘Members of the Council for Science, Technology and Innovation’, https://www8.cao.go.jp/cstp/english/policy/members.html, for a full list of CSTI’s members.

49 Mark Williams Pontin, ‘China’s Antisatellite Missile Test: Why?’, MIT Technology Review, 8 March 2007, https://www.technologyre-view.com/2007/03/08/226350/chinas-antisatellite-missile-test-why/.

50 See Government of Japan, ‘Basic Space Law (Law No. 43 of 2008)’, May 2008, https://stage.tksc.jaxa.jp/spacelaw/country/japan/27A-1.E.pdf for an English translation of the law.

51 See also Suzuki Kazuto, ‘Uchū Kihonhō de Nihon no Uchū Kaihatsu wa Kawaru ka’ [Will the Basic Space Law Change Japan’s Space Development?], Science Portal, 21 May 2008, https://scienceportal.jst.go.jp/explore/opinion/20080521_02/.

52 Japan, Cabinet Secretariat, ‘National Defense Program Guidelines for FY 2019 and Beyond’, p. 20.

53 Eric Johnston, ‘Japan’s New Space Squadron Takes a Giant Leap Forward’, Japan Times, 2 June 2020, https://www.japantimes.co.jp/news/2020/06/02/national/japan-space-force-self-defense-forces/.

54 From a purely technological perspective, the US-based Center for Strategic & International Studies (CSIS)’s annual space threat assessment pointed out in 2019 that the Japan Aerospace Exploration Agency (JAXA)’s space capabilities could be applied to counter-space weapons systems. This includes a capability developed in 1998 that could ‘rendezvous and successfully dock two orbiting satellites’ or ‘a robotic arm that could grapple and exercise coordinated control over a second satellite’, although Japan has neither the plan nor the policy to use them for military purposes. See, for example, Todd Harrison et al., ‘Space Threat Assessment 2019’, Center for Strategic & International Studies, April 2019, p. 38, https://csis-web-site-prod.s3.amazonaws.com/s3fs-public/publication/190404_SpaceThreatAssessment_interior.pdf.

55 Kanehara Nobukatsu, ‘Kagaku Gijutsu to Anzenhoshō, Minsei Gijutsu no Kanri/Ikusei ga Kyūmu’ [Civilian Technology Management and Development Is an Urgent Task for Science and Technology Security], Nikkei, 10 April 2020, https://www.nikkei.com/article/DGXKZO57867440Z00C20A4KE8000/.

56 Interview with Terazawa Tatsuya, July 2021.

57 Maeda Yudai, ‘Onshitsu Kōka Gasu Sakugen “46%” Mokuhyō no Shōgeki, Naze Nihon wa Noriokureta no ka’ [The Shock of ‘46%’ Reduction Goal of Carbon Emission. Why Did Japan Fall Behind?], Chuo Koron, 14 July 2021, https://chuokoron.jp/politics/117748.html.

58 ‘“Datsutanso Dengen 6 Wari” Takai Hādoru, Onshitsu Gasu Mokuhyō ga Senkō, Gyakusan de Sakutei’ [60% of Electricity to Be Generated by Non-fossil Fuel, a High Hurdle, Meeting the Goals for Greenhouse Gas Emission Takes Priority, (the Basic Energy Plan) Crafted through Calculating Back from the Final Goal], Asahi Shimbun, 22 July 2021, https://www.asahi.com/sp/articles/DA3S14983936.html.

59 Saburo Okita, ‘Japan, China and the United States: Economic Relations and Prospects’, Foreign Affairs, vol. 57, no. 5, Summer 1979, https://www.foreignaffairs.com/articles/china/1979-06-01/japan-china-and-united-states-economic-relations-and-prospects.

60 See, for example, Mark A. Lorell, Troubled Partnership: A History of U.S.– Japan Collaboration on the FS-X Fighter (Santa Monica, CA: RAND, 1995), pp. 97–128.

61 Ibid., pp. 9–48.

62 Businesses, research institutions, private organisations, individuals and other persons listed in the Entity List are subject to licencing requirements for the export, re-export and transfer of specific items. See, for example, US, Bureau of Industry and Security, ‘Entity List’, https://www.bis.doc.gov/index.php/pol-icy-guidance/lists-of-parties-of-concern/entity-list for descriptions of the Entity List; see also US, Bureau of Industry and Security, ‘Huawei Entity List Frequently Asked Questions (FAQs)’, 3 December 2020, https://www.bis.doc.gov/index.php/documents/pdfs/2447-huawei-entity-listing-faqs/file; and US, Department of Commerce, ‘Commerce Adds China’s SMIC to the Entity List, Restricting Access to Key Enabling U.S. Technology’, 18 December 2020, https://2017-2021.commerce.gov/news/press-releases/2020/12/commerce-adds-chinas-smic-entity-list-restricting-access-key-enabling.html.

63 Natsuko Segawa, ‘Japan Excluded from New US Foreign Investment Whitelist’, Nikkei Asia, 25 January 2020, https://asia.nikkei.com/Politics/International-relations/Japan-excluded-from-new-US-foreign-investment-whitelist.