Calibrating China Ties – Japan
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From Carnegie, China, this is China in the World. Engaging leading scholars and former policymakers on China's foreign policy and evolving global rule. Brought to you by the East Asia-based Center of the Carnegie Endowment for International Peace.

My name is Ian Chong. I'm a non-resident scholar with Carnegie China and also an associate professor of political science at the National University of Singapore. Welcome to our new season of the China in the World podcast with Carnegie China. And for this season, we are looking at how states in East Asia navigate their economic and security considerations as they interact with the PRC. For

For this session, we're going to start off with Japan. And with us, we have Professor Igata Akira, who's a project lecturer and heads the Economic Security Intelligence Laboratory at the Research Centre for Advanced Science and Technology at the University of Tokyo.

Also with us is Teruoka Ayumi, who's a postdoctoral research scholar at Columbia University with the Columbia Harvard China and the World Program. She's also an incoming assistant professor at Brandeis University. Hi, everyone. Akira Igata here. Happy to be here. Hi, everyone. Excited to be here. Great. Wonderful. So...

Let's start with the really big picture. How do you describe Japan's economic relationship with the PRC, bearing in mind that the two economies are really deeply intertwined? Akira, why don't you start us off? Sure, I'll start with the easy questions, right? Yeah. So obviously, it's very difficult. I mean, you look at the statistics and 20% of Japanese trade is basically with China, right? We buy more from China than we sell them. But in general, it's 20%.

China is the biggest trading partner for Japan. And on the flip side, Japan is the second biggest trading partner for China. You look at FDI and Japan's the third largest FDI country for China. You look at tourists and China is the third largest tourist group coming to Japan. So there's no way to think about Japanese economy prospering without the existence of China.

But then we have seen various problems, including some of the economic coercion we have seen from China towards Japan in the last decade or so. I mean, the famous one is the Chinese stopping exports of rare earth materials to Japan back in 2010. Even today, you're seeing something similar by the Chinese restricting exports of critical minerals like the so-called 3Gs, right? So it's gallium, germanium, and graphite. All of these materials are critical for Japanese industry.

And that's why Japan has been really strengthening its economic security. And while, of course, Japan's economic security policies are not directed towards China, meaning that it's supposed to be country agnostic, all of the new Japanese rules, laws, standards on economic security issues actually allows Japan to deal with many of these new risks from economic security that's coming from China. So let me just quickly follow up on two issues.

I think in recent years, as the PRC's own economy has slowed, there's been an outflow of Chinese money towards various places, including Japan. How does that play into the issue of Japan's economic relationship with China?

So if you look at the amount of Chinese FDI into Japan, it's still minimal compared to other countries, right? However, there has been increasing concerns about foreign investments coming in to buy some of the strategic assets of Japan.

territories that are critical for Japan. Like, for example, there have been cases of Chinese money trying to buy many of the water sources in Japan or buying land property close to, let's say, the self-defense forces bases and whatnot. So Japan is trying to strengthen some of the protection that's available for the Japanese government to intervene so that

we do not allow that to come as well. So once again, it's all about balancing the economic prosperity, economic trade, economic investment that's legitimate and is, I guess, admissible from the Japanese government while trying to make sure that we do not allow anything that basically tries to undermine the security of Japanese governments.

So one other thing on the rare earths that you mentioned, I think one of the sort of latest TRC efforts in response to the tariffs imposed by the United States is to try to block off exports of items that have rare earths coming from China processed or otherwise, you know, then going to another market, then going further on to the United States. Has there been efforts by the Chinese to sort of put pressure on Japan on that front?

Yes. So in a way, China seems to be pressuring not just the US, but all other countries trying to trade with the US by leveraging its supply chains. Right. So this actually goes right into Yumi's area of research. She looks at alliance relationships quite a bit. So in terms of the wedge strategies that you've sometimes also talked about, how does the economic aspect of

the PRC's use of its economic ties with Japan and also Japan's own economic considerations with the PRC. How does that affect the U.S.-Japan relationship? So I think, you know, since Japan has been a victim of economic coercion, that really became one of the drivers for Japan to seek cooperation.

other partners that could also serve as a sort of diversification strategy and as a way to reduce its dependence on China. So one of the most prominent example is Japan-Australia ties. You know, Australia also has some rare metal minerals

So sometimes that economic co-origin piece can become a driver for Japan to seek other partnerships other than China in important ways and in a way that also serves security interests. Because Japan is always seeking for other security partners that are like-minded and reliable in the very contested space in East Asia. But I would also add to Akira's point that

Japan was basically a pioneer of facing China's economic coercion. There are many other cases before Japan faced economic coercion of rare earth mineral like nori with salmons or even Philippines bananas or garlic with Korea, I think wine and beef recently with Australia. These products are easily substitutable, but rare earth wasn't. Because

Because Japan was banned on rare earth mineral in 2010, Japan had 15 years to think through how to diversify its exports and imports partners on these key minerals, key substances that have significant implications for the supply chains.

So in a way, that's why Japan became one of the champions of economic security debate. So I just want to follow up on that too, because now I think there's a lot more certainty about the pressure coming from Beijing. But in the initial stages of what we saw the PRC trying to do in terms of Japan and economic security, they wouldn't admit that they were doing any export controls and all that. And there was a lot of debate around what to do, how to interpret all of that.

How do you see that sort of discussion move from the economics to the security? I think, you know, there's a lot of good researches about, you know, when China goes sort of very explicit and open about imposing economic sanctions and when they become more sort of, you want to use plausible deniability and want to use consumer boycotts and just say that these are just efforts by patriotic Chinese citizens.

trying to support your government and there's nothing that government is doing directly. But recently, with a lot more undermining of the credibility of WTO by United States, for example, there may be less incentives for Beijing to play to the WTO rules.

in a way. So I think all the bets are kind of off in terms of, you know, stability of international organizations and what kind of role those existing international institutions will play in prohibiting such behaviors that just go directly against some of the rules established by and shared by other partners. So that's, I

I guess one of the changes I've been seeing that Beijing might be more willing to accept the blames and, you know, be more explicit about imposing sanctions. So could you briefly just talk us through what the security concerns Japan has with the PRC, their territorial disputes, the two neighbors, their disputes over history? What are the sort of real pressing security concerns that Japan has now?

So I think the biggest security concern for Japan is a possible contingency around Taiwan-Taiwan Strait. And then, you know, Japan started kind of becoming skeptical about China's intentions and especially maritime assertiveness around the disputed islands in East China Sea starting in 2008.

But as Japan dealt with East China Sea issues, they started seeing more connections with China's assertiveness in South China Sea and also across Taiwan Strait. And the more threats that Taiwanese are facing, Japan is coming to terms with the fact that perhaps Taiwan's security might not be so easily divisible from Japan's security. Right. So, Akira, you look a lot at the Japanese economic situation

a relationship with the world and also with China. How do you see Japan as trying to calibrate and manage its economic cooperation with the PRC that still continues, right? Japan continues to sell a lot of machinery, a lot of vehicles to the PRC.

uh, but yet there are these real pressing security concerns. How, how is that balance struck? Sure. So of course the balance has to be struck. Uh, one thing to note is that it's not just about security versus economics, right? There are risks in doing business with China as well. So it's security and economic risks versus how much can Japanese industry make money off of doing businesses with China or doing tech development with China. And, uh,

There's a couple of different issues here when thinking about this issue, because one, there are certain things that the Japanese government wants to do, which tends to be a little bit more, let's say, closer to hedging risks versus you look at the industries and businesses and they want to make money. Right. And depending on which industry you are in, the risks that each of these Japanese companies faces from these Chinese economic risks are different. Right.

For instance, if you're working on high-tech industries, then there is a stronger reason for the Japanese government to intervene in some of their activities by saying that, look, if you're working on AI development or on semiconductors or quantum or biomanufacturing or any of these critical and emerging technologies that can be easily used for military uses,

then the government is and will increasingly be making their export control much more stringent, their investment screening much more stringent, their research security more stringent. So even if the business wants to do more with China, they cannot. So in a way, the choice is made for them, right? They have to start looking for other non-Chinese partners.

But in other areas where it's difficult for the Japanese government to use their security justification to intervene into the economy, then even if there are those in the Japanese bureaucracy or politicians who want these Japanese businesses to decouple from China,

They would say, no, we're going to keep on making these garments in China. We're going to be engaging in, let's say, sustainable technologies with China. We're going to be selling materials that cannot be used for military uses with China.

So, once again, each of these different Japanese companies would have to make their own calculations about how much risk they should take about what would happen if the Chinese government engages in economic coercion toward one of their supply chains, or how do you see the risks of human rights violations happening in one of their supply chains in China, and what would their brand damage be, their reputational damage would be when that is exposed.

And of course, once again, what would happen if anything happens over the Taiwan Straits? Would your company be able to continue buying or selling things to and with China? That brings me to two points that I think listeners would like to know about, which is one, you know, when we talk about issues that are more security focused and those that are less, it's easy to make a distinction. But there are those that fall into this gray area, right? That might be security, might be not security.

How is that handled? Are there any first principles that the Japanese government or Japan as a whole sort of starts with? And also, you know, is there a lot of lobbying from industry and other sources perhaps loosen up some of those controls? So the interesting thing is that you look at all of these strategic documents that has been published by many of the major Japanese industry groups like Keidanren or Keizaito Yukai or Japan Industry for New Economy and others.

it's clear that they actually embrace the concept of economic security. They all make the argument that, yes, we do understand that we are now living in a different environment where we need these Japanese governments to be intervening more into the market. And they also require some of these intel on economic security issues to be provided from the Japanese government to the industry because, again,

It's true. Some of the bigger Japanese companies have decided to create, to invest in creating their own economic security divisions to collect this information, analyze it, and see how that impacts their own management and their businesses. But most of these big companies, as well as all of the small and medium enterprises in Japan, do not have the capacity to do so, which means that they require information from the government as well.

So they say, yes, we do understand that there needs to be more intervention from the government to the market, but they also ask for regulatory transparency or predictability in their policies. One evidence of the Japanese government trying to balance the sticks and carrots when dealing with the private sector is the new Economic Security Promotion Act.

It's supposed to be one law, but it actually have four different components to it. And two of them are sticks, right? Two of them are the Japanese government intervening into the market activities. But the other two is about the government giving more subsidies to the company so that they can be more resilient. So once again, I think the Japanese government

government and private sector is creating this new interesting type of a public-private partnership ecosystem on economic security where they're both trying to strengthen regulation, but they're doing it in a way so that the business is happy when it comes out. Want more on China's economic trajectory?

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I think this allows me to sort of pivot to Ayumi because this has been an area that's really up your alley of expertise. So in conjunction with all the sort of economic activity and protection that's going on, we also see increased Chinese military activity in areas that are near Japan. We've seen joint patrols between Chinese and Russian fighter aircraft. We've seen

Chinese side put up metal structures in South Korea's EUZ. We've seen the cat and mouse game

around the Senkaku Diaoyu intensify. Quite recently as well, we've seen, of course, the major military exercises near Taiwan. We've seen the use of military aircraft and naval ships to do patrols around Taiwan. We've seen the increased activity, contestation around the Philippines and off of Vietnam. Also recently, we've seen live fire exercises that were not

announced. And further afield, there were similar live fire exercises off of Australia. So basically, in this sort of whole area where Japan is active, there seems to be a lot more PRC military activity, perhaps trying to push forward, perhaps making use of the uncertainties and anxieties that have been created by the Trump administration's tariffs. How does that feature into Japan's consideration of its economic security and sort of other key concerns?

Well, I think the Japanese businesses are also concerned. Business executives are very concerned if there is an actual conflict in the Taiwan Strait. And then, you know, even if you secure supply chains, it would be really difficult to just continue and do business as usual. Right. So ultimately, what we are trying to do, what Japanese government is also trying to do is to prevent that conflict to occur. Right.

So, Japanese government is investing a lot more in its own defenses and working with other like-minded countries. As much as PRC, PLA, People's Liberation Army, is conducting exercises, Japan is also exercising a lot more with other like-minded countries.

in order to deter such a conflict to occur. So I think we're doing both, right? We are trying to secure our supply chains and enhance economic security, but at the same time, we try to enhance deterrence so that we can continue to do business with China. But some of the initiatives of economic security agenda is also counterintuitive.

some of the defense industries. So the establishment security clearance, you know, Akira can also speak to this, will benefit some of the Japanese defense industries, will make it easier for them to do more businesses in the defense industry side. And again, again,

Japanese defense industry has been limited historically, so it wasn't a very prosperous industry to start with in the beginning. But I think that Japanese government is trying to make it more robust and to have a little more sustainable business model in Japanese defense industry.

So in order to create wealth, we do Japanese businesses and government. They're all trying to make money so that we can bring that wealth into defense and then do more building of defense capability to deter China. Yeah, so I do want to also follow up with one other point here, which is when we talk about trade and all that, we think about numbers and so forth. But Japan being an island nation, much like Singapore is,

There are extended lines of communication. When it gets fossil fuels, they come a long way. They have to go through the Indian Ocean, the South China Sea, before it even gets to the Taiwan Strait. Same thing when Japan trades. Its goods have to go somewhere. It's either across the Pacific or again through the South China Sea and Indian Ocean. How does Japan think about securing the physical aspect of its supply chains?

So I think that's why Japan is fully aware that it is a maritime nation, very dependent on resources and exports with other countries. And because of that identity, I think that Japan really cares about the freedom of navigation and freedom at sea to be preserved. So when Japan does say a lot about freedom and open Indo-Pacific,

That's what I think Japan cares most about is sort of the rule-based order in a maritime domain, because otherwise Japan can't trade, Japan can't get energy resources safely, can't rely upon exports, but Japan is dependent. So I think, and then there are many countries like that in Southeast Asia, Asia,

So I think that's the most core value that Japan is still pushing forward. And that's why Japan will continue to advocate for a concept like FOIP, freedom and open in the Pacific. Right. So this is something I'd like to throw to both of you because I know you're really experts on this. Now, I mean,

At the present moment, the rules-based international institutions that we have are under a tremendous amount of stress. Some would say that they are being undermined or dismantled such that they can't go back to what they were. How does Japan look at this situation as it juggles its economic security, as it juggles its more contentious relation with the PRC and uncertainty brought on by the United States?

So I'd say that in the short term, Japan doesn't really have much choice, right? For since the, since 1945, Japan's security has been based on Japan and U.S. alliance as the anchor of all relationships. So we have to continue doing that.

We will continue having great relationship with the Trump administration, and that would be the core of our relationship. However, mid to long term, I think it has become much critical and obvious that Japan needs to start diversifying away to other countries in terms of security issues as well.

And Japan has slowly started moving towards that direction, right? We've all done international relations 101, Japanese foreign policy 101, talking about the hub and spoke system in the Asia Pacific, where you have US as the hub, and then you have various bilateral relationship between the hub, US and Japan as alliance, US and South Korea, US and Philippines, and so on. But now under, I'd say, Biden administration,

Even the US has embraced these other spokes to work with each other so that we have a more of a latticework relationship among the countries of the Indo-Pacific.

And that was the right direction. But then you look at all of these type of new mini-laterals and multilaterals that have popped up in the Indo-Pacific region over the last, let's say, 10 years, and you start to see a pattern, right? So for instance, we have a much more robust cooperation between Japan and South Korea through Japan-US-South Korea trilateral. You see Japan-US-Philippines trilateral.

trilateral. You have the Quad, which is Japan, US, Australia, and India. Japan, US, Australia, trilateral. I mean, all of these new mini-laterals are basically Japan, US, and other countries.

Which means that now perhaps what Japan needs to start looking at is to try and expand our mini-laterals in the Indo-Pacific that doesn't necessarily include the U.S. And once again, I want to make sure that I'm not misunderstood here. I'm not saying we remove U.S. from these mini-laterals, right? If the U.S. is willing to join, then that would be fantastic.

But given the fact that it looks like the current Trump administration has a certain skepticism towards these kind of mini-rattles and international organizations, perhaps there are areas where Japan wants to cooperate more with other countries where U.S. may not want to join.

And I guess my advice to the Japanese government is that even if you don't have U.S. as a partner in trying to do something new internationally, don't let that stop you. We need to try and create more mini-laterals that does not necessarily include the U.S. so that in the long term, we can be more resilient without relying completely on the United States.

Yeah, so I think there's a reason why Japan also wanted U.S. to be everywhere in those latticework, because it was also a way for Japan to enmesh United States so that U.S. wouldn't leave us or Japan or Asian allies.

But as Japan does work on these trilateral, quadrilateral frameworks, Japan has also built its own trust with other like-minded countries independently without the United States. So the robust relationship is the one I discussed earlier.

Japan-Australia relationship. Australia was the first country to sign a reciprocal access agreement with Japan, and that allows Australian forces to be operating on Japanese soil and vice versa. And that was then followed by UK, which also signed RAA agreement with Japan, and then now Philippines became the third one. So there's a lot more substantial, substantive agreement in the

cooperation on the military side that Japan is having with other like-minded countries. Well, the interesting movement after Trump administration

went on this tariff war with everybody in the world was that there was a UK-Japan 2 plus 2 meeting on the economic 2 plus 2 meeting with foreign ministers and trade ministers. And what they discussed was their shared interest in preserving free trade. And I think the UK joining CPTPP, Comprehensive Progressive Trump-specific partnership, was a win for Japan because that's another G7 country in the multilateral fora

I think there's a lot more incentives for countries like Japan to use that platform, CPTPP, which doesn't have United States. But that way, there are that's going to be one platform where countries can discuss the future of free trade without United States. That's currently led by a very anti-free trade leader. Yeah.

But at the same time, I think Japan would always keep the seats warm for the return of U.S. because Japan cannot let go U.S. power. U.S. power is just too big to be dismissed.

in countering China's influence. So that's, I think, Japan will work to continue to work with Trump administration to try to keep U.S. engaged in the region. But at the same time, Japan will work with other like-minded states to preserve the order to the extent they can. And it will also be much more present in Southeast Asia and other parts of the regions that are now upset and, you know, kind of...

may become a lot more distrustful of the United States and might feel that there's no choice but to kind of rely more on China. When Japan is present, there's a third option. So I think there was really interesting news recently that

Japanese warship visited Cambodia to the re-label base that was mostly funded by Chinese BRI. And then Cambodia made sure the first foreign visitor or first foreign warship to visit the port was not Chinese or American. It was a Japanese warship. So I think Japan will continue to play that role to make sure that the rest of the region doesn't

divert too far away from the United States or U.S.-led partnerships that were already built in the region. So I want to...

change gears a little bit on a still-related topic, which is one of the things that we saw in the earlier round of the trade tensions between the United States and the PRC was that a lot of Japanese companies ended up doing this China plus one strategy. They put a lot of their new investment in places like Southeast Asia. That seems to be under stress now with the tariff war. I mean, when the initial effort was to try to de-risk from the PRC,

So, I mean, where does that approach stand now? Yeah, so the carriers aren't helping the Japanese businesses at all, right? Moving supply chains is one of those things where saying it is easy and doing it is actually really hard. I mean...

Whenever you're investing into a foreign country, you're thinking five years ahead, 10 years ahead, 20 years ahead, right? You have to build a physical factory. You have to hire people there. You have to send Japanese people with families from Tokyo or anywhere in Japan to that country.

And then the politics comes in, US-China competition, now you have to have a China plus one strategy. And they finally decided to move some of their production capacity, let's say, to Vietnam or Indonesia or the Philippines.

And then now you have a different administration in the U.S. And for the next four years, it looks like we're not sure if we can continue using these new supply chains in Southeast Asia. And in some sense, the tariffs are not perfectly seemingly logical, at least from the Japanese businesses side, because now you've got Japan with a potential tariff of 24 percent. But you look at Vietnam and I think the number was like 46 or something like that. Right.

So, I mean, in a way, Japanese government, Japanese businesses were trying to follow some of the U.S. lead in trying to de-risk away from China. And don't get me wrong, there are risks that China poses to Japan directly as well. So this was in the interest of Japan as well. But

It must be emphasized that the initial motivation for, and there has been a continued pressure from the U.S. for Japan to de-risk away from China. And that's one of the reasons why we have been doing that. We're all hoping for the best. But to be honest, at the moment, I think the Japanese companies are once again kind of

sitting down, looking at what the governments are doing and trying to look for a future where there could be a worst case scenario. But for now, business as usual. What would that worst case scenario look like? So I mean, there are so many different types of worst case scenarios. Right. One is it is possible to argue that this scenario,

environment of unpredictability continues, right? We may get more tariffs. We may not. We may get tariffs, but the numbers might change, might go down, might go up. If it

this discussion gets mixed up with the military issues, security issues, which the Trump administration is already seemingly trying to do, then that's a longer term discussion where it really skews the discussion, which should be about purely economic issues.

So, yeah, this unpredictability continuing is one of the worst case scenarios. Yeah. So, Ayumi, looking ahead, what do you see as being on the horizon in terms of Japan's efforts to manage its security and economic considerations as it relates with China?

the PRC, obviously, but also considers the U.S. position. What's on the horizon? So I think Japan will continue to work with the sort of like-minded officials within the Trump administration who care about allies, especially when it comes to countering China, because there are China hawks in Trump administration who are pretty dominant allies.

And, you know, these people actually care about working with good allies who would punch back against Chinese influence. So I think, you know, on that defense side, I think Japan will continue to work and deepen ties with U.S. officials and U.S. military. U.S. military does have influence.

Right. Even in the Trump administration, I think President Trump wanted to use various military officials to kind of boost his credibility during the first term. So I think there is some benefit to be able to work with U.S. military and U.S. military leaders in a very substantive way. Right.

But at the same time, I don't think Japan will ever really punch back publicly because I think one of the lessons of managing alliance with a country like the United States, which has publicly postured against Japan during the economic war in the 1980s especially, is that there's really no benefits for Japanese leaders to kind of incite anti-Americanism within Japan.

because security interests are there. And then enhancing alliance at this time is very, very critical. So rather than kind of playing around with nationalism against the United States, I do think Japan will, Japanese officials will continue to work within, try to work within Trump administration. So we're coming towards the end of our program. Akira, any final concluding thoughts you'd like to leave us with?

We live in interesting times, right? We wake up, we look at our phones, and there are breaking news from BBC or New York Times or Washington Post or what have you. And I think everyone's confused and a little bit scared. And at times like these, it's easy to try and look at the information sources that are easy to acquire and easy to understand.

And I'm a little bit concerned that because of all of this weirdness that's happening in the real world, this might hyper-fuel this echo chamber of information that

necessarily doesn't have credible sources, right? I'm starting to see an increasing number of what seems to be a, like a conspiracy theory, hearing from my family members, for example, or from my old elementary school students who keeps on saying that, oh, now the Americans think that Japan and China and South Korea are ganging up on each other to sell the U.S. bonds to punish the U.S. for what it's doing.

Which is completely untrue, but that seems to be the narrative that's becoming much more popular. We're seeing all these new type of generative AI being used for spreading disinformation from all sides. But I hope that discussions like this among experts who have basically spent our lives thinking and reading and writing about these things

to be a little bit more credible than just some random tweet or some comment on some internet news site. Ayumi, any concluding thoughts? No, I think Akira makes a really good point. I think, you know, there is this information campaigns and efforts and various sort of incredible sources of information. But at the same time, I also think

kind of see in Japan there's more interest in security issues and such issues from ordinary public. So people like Akira and other experts based in Japan often appear in TV shows and radio shows. And I think there's a really appetite for learning from experts also.

So I think that's a real change, a sea change, I think, in a positive way, that people themselves really want to learn from experts who actually study the critical issues of geopolitics in East Asia or in the Pacific.

All right. Well, thank you so much, Akira and Ayumi, for joining us. I hope that our audience gets a better sense of how Japan is trying to juggle its economic and security concerns as it relates to both China and also the broader world, including the United States. Thank you all for listening, and we'll see you next time.

Views expressed are those of the host and guest panelists, and not necessarily those of Carnegie China or the Carnegie Endowment for International Peace. Subscribe to the China in the World podcast on popular podcast platforms such as iTunes, Stitcher, or wherever you listen to podcasts. Learn more about Carnegie China at carnegiechina.org. Tim Martin is our audio engineer and producer, with help from Hewan Park and Wan Yi Du.