Japan’s high stakes diplomacy with the US and China

Picture: Reuters

Australia & Japan in the Region

Volume 6, No 10, October 2018

Japan is now fully embarked on navigating a course through the economic and national security minefield that lies between the United States and China.

Japanese Prime Minister Shinzo Abe will visit Chinese President Xi Jinping on a state visit next week, less than a month after meeting US President Donald Trump in New York.

After stalling for over 18 months since Mr Trump came to office, Tokyo acquiesced to US demands for bilateral trade negotiations late last month. It’s a defensive move aimed to stave off US Section 232 tariffs on Japanese automobiles — under the guise of US national security concerns — that would hit Japan’s most important and internationally competitive industry hard. Abe appears to have secured a stay on those tariffs in his recent meeting with Trump.

Trump has cast doubt over the US security umbrella on which Japan relies

The risks and difficulties of negotiating with Trump are clear for all to see. Canada and Mexico have just kept NAFTA together in the face of the United States’ attempts to divide and conquer its North American partners with untenable bilateral demands. South Korea was forced to renegotiate the KORUS free trade agreement on inequitable terms at threat to its peninsula peace offensive.

Japan has declared it’ll limit opening up sensitive sectors to the levels of market access earlier agreed with the United States under the Trans-Pacific Partnership (TPP) negotiations. The Japanese aim to induce the United States back into the TPP through this route is unlikely to succeed but it might well save the bilateral relationship. Failed negotiations could see US tariffs imposed on Japanese cars and car parts, or worse. Trump has cast doubt over the US security umbrella on which Japan relies and which is being used as economic leverage under his unpredictable leadership.

Trump has succeeded in dealing bilaterally with countries as he forces them into the false choice of keeping US markets open or holding fast on multilateral trade. The only chance of resisting the march towards managed, discriminatory trade is for the rest of the world to stand up to Washington’s assault on global institutions, rules and openness. There are some signs of countries working together towards that objective, symbolised by German Chancellor Angela Merkel leaning over Trump at the G7 meeting last June. Japan’s leadership in concluding the TPP without the United States was also an important moment of resistance to that drift.

But much more will need to be done to hold the line for multilateralism.

Joint infrastructure projects from Asia’s two largest investors would be a big step forward in diversifying regional economic and political risk

Mr Abe will arrive in Beijing with a large business delegation on his mission to restore normalcy in Japan’s relationship with China. All eyes will be on what the immediate payoff from the improving relationship between the two Asian giants might be. If the visit succeeds, we could see joint Chinese–Japanese infrastructure investment projects in Southeast Asia and beyond. There are dozens of projects under consideration by the two countries. Giving some the go-ahead would be a game changer, not only in terms of benefits for Japanese business, but in terms of what it signals about Chinese intentions to play the multilateral economic game.

Joint infrastructure projects from Asia’s two largest investors would be a big step forward in diversifying regional economic and political risk. Agreement on infrastructure cooperation will also mark the start of a conversation with China, not about China, on agreed principles for deploying its war chest of capital in infrastructure projects abroad.

China’s Belt and Road Initiative will likely be the largest roll-out of foreign infrastructure investment ever. It brings with it major risks for all involved and China has already experienced reputational and geopolitical blowback from failed projects. Japan underwent similar difficulties with its investment push three or four decades ago. Former Japanese prime minister Kakuei Tanaka was famously trapped in large scale protests in Indonesia in the mid-1970s as Japan’s footprints abroad stepped on foreign political toes.

In managing its initiatives with China and the United States, Japan has carefully cleared the pathway with the United States. The US–Japan–Australia agreement for infrastructure investment in third country markets is replicated in the agreement that Japan seeks in cooperation with China, although the chips on the table will be much higher.

For China, there is growing acknowledgement of the limits to transactional dealings with Mr Trump. The trade deal that Beijing believed the United States had asked for was rejected earlier in the year. The worry is that, rather than dealing China in on whatever terms, the Trump administration is now set on a course to block China’s inexorable rise.

Chinese President Xi Jinping is expected to reciprocate Mr Abe’s trip to Beijing with a visit to Japan early next year. The economic interdependence between China and Japan meant improved relations were inevitable at some point but the uncertainty in global economic policy has pressured both Tokyo and Beijing to accelerate all that.

These summit meetings are a welcome development for a region and global economy in need of steadying diplomacy. The two Asian neighbours share one of the largest trade relationships in the world. They have no bilateral agreement that covers their contemporary engagement, which is fundamentally anchored in the international rules of the WTO that Mr Trump’s America First agenda threatens to undermine.

The China–Japan–South Korea trilateral and East Asia’s Regional Comprehensive Economic Partnership agreements provide cover for China and Japan to progress bilateral issues. The TPP was similarly cover for Japan’s negotiating bilaterally with the United States. Having opened up bilateral negotiations with the United States, there could now be more room for bilateral negotiations between China and Japan.

These two unlikely partners in Asia might yet be the best hope of holding the line against Trump’s assault on the global trading system.

About the author

Shiro Armstrong is Director, Australia-Japan Research Centre; Director, Asian Bureau of Economic Research; Editor, East Asia Forum; and Fellow at the Crawford School of Public Policy, The Australian National University (ANU). Shiro received his PhD in international economics from the ANU.

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