Australia and Japan as anchors to regional recovery and cooperation

Photo: Reuters/ Du Xiaoyl

Author: Shiro Armstrong, ANU

Australia and Japan have been among the global front runners in managing the COVID-19 health crisis and are positioned to lead the lifting of economic restrictions and economic global recovery, if they are able to contain second wave outbreaks of the pandemic.

A virtual summit today between Prime Minister Shinzo Abe and Prime Minister Scott Morrison provides a chance to deepen the bilateral relationship and signal commitment to broader regional cooperation that can help improve outcomes in the post-COVID-19 world.

High on the agenda is how to influence Chinese and US behaviour and engagement, and outcomes between the two superpowers.

The Australia–Japan relationship today is seen as a model relationship, serving as the anchors of prosperity and openness in the Asian region. It wasn’t always so. Their modern relationship is underpinned by a deep economic complementarity and people-to-people exchanges that have sustained the growth of a close political and growing security relationship.

Announcements from the virtual summit are likely to focus on security developments, following Canberra’s 2020 Defence Strategic Update and progress on the Visiting Forces Agreement between the two militaries.

Japan is Australia’s second largest trading partner with $88.5 billion in two way goods and services trade that accounts for roughly 10 percent of Australia’s total trade. Japan is the second largest source of foreign direct investment in Australia, creating jobs, trade links and increasing asset values. Many famous Japanese brands sold in Australia are shipped from Australia’s largest trading partner, China, and Japanese businesses in Australia sell actively into the Chinese market.

Australia matters for Japan by underpinning its economic security as the supplier of close to two thirds of its resource imports like iron ore and a quarter of its energy imports, by far the largest single source of these strategic raw materials. Japan relies on imports for almost all its resource supplies and 90 percent of its energy needs. As Japan shifts its energy mix away from oil to gas, Australia has become strategically more important to Japan compared to the Middle East.

Already there is rapidly growing cooperation in hydrogen energy and the expansion of renewable energy in Japan is an opportunity for Australia to become a more, not less important energy partner because of its huge natural endowments.

This bilateral relationship will be important for recovery from the worst crisis we have experienced since the two countries were at war 75 years ago. The progress that’s been made in building trust and a deep interdependence from complementarity and far-sighted leadership since then is now a source of stability in Asia.

Japan and Australia share a strong interest in managing US–China strategic competition, managing the rise of China, maintaining an open, rules-based order, pushing back against a US retreat from multilateralism, preserving regional stability and assisting regional recovery from COVID-19.

The times call for a strong initiative from Australia and Japan in shaping regional outcomes. There is a history of such bilateral action, including that when both countries signed onto the creation of APEC.

Japan’s partnership with Australia will be key to creating a region that welcomes a particular form of Chinese rise: one that does not abandon but helps strengthen multilateralism, prosperity and security. The virtual summit will limit the frank exchanges possible on what to do about the other superpower, the United States. That will be in the minds of both leaders as they search for a way to maintain US engagement that contributes to stability rather than undermines it. The challenge is to create a region that enmeshes the United States into mixed-interest outcomes, including positive-sum economic exchange, and disincentivises the US inclination towards unilateral or bilateral action. That will only be achieved via broader collective action especially with other partners including China within the region.

Economic cooperation can bring a peace dividend in normal times but in these abnormal times that peace dividend can be compounded with cooperation that helps other countries recover and transition from COVID-19.

Australia and Japan can help lead an Asian compact of initiatives that promote more rapid recovery from COVID-19 and reconstruct the regional order in the post-COVID-19 world. That would involve regional effort to keep markets and supply open for food, medical and protective equipment, energy and trade. Concluding East Asia’s Regional Comprehensive Economic Partnership agreement by November while continuing to engage India in regional economic cooperation is a crucial part of that agenda. But more will need to be done to protect open markets and expand rules and cooperation in Asia and with global partners.

A potential second wave of COVID-19 infections could delay a travel bubble between the two countries but standards and protocols for movement of people for business, education and eventually tourism are an immediate agenda. Japan is likely to be one of the first countries Mr Morrison will visit when he can travel. If Mr Abe and Mr Morrison attend the Washington G7 meeting planned in September, there will be a chance to stopover in Japan for a summit then.

The crisis has also created the opening to improve the digital infrastructure and region-wide regulations that bring transparency to supply chains, balance privacy protections and accelerate digital transformation.

Asia’s most vulnerable will need countries like Australia and Japan, working with other regional partners, to help strengthen financial safety nets. Indonesia and other emerging economies cannot finance their crisis responses with debt like the advanced economies can, and will need support from the global capital markets.

These efforts can support Asia’s most vulnerable economies, engage India, Indonesia and other partners while helping to nudge Chinese and American behaviour towards cooperative outcomes.

The world faces big choices as it tries to climb out of the deepest economic hole since the Great Depression in the 1930s and tries to avoid the huge mistakes that followed. Absent the usual global leadership and with most of the world still struggling to deal with the coronavirus pandemic, prime ministers Morrison and Abe have a particular opportunity to exert a positive influence in the post-COVID world.

About the author

Shiro Armstrong is the Director of the Australia-Japan Research Centre at The Australian National University.

Updated:  13 August 2020/Responsible Officer:  Crawford Engagement/Page Contact:  CAP Web Services Team