Chain reaction

Tokyo's politicizing of economic issues will only endanger Japan's interests and regional stability

The United States, banking on its strengths in industrial and supply chains, has scaled up its "long-arm jurisdiction", advocated decoupling with China and fueled the Russia-Ukraine conflict. It has managed to transform industry and supply chains into an issue of global institutional arrangement and is using it as part of its political tactics to contain China.

Under Washington's influence, Tokyo has become increasingly conservative. The US and Japan have conducted frequent cooperation on the so-called issue of economic security, and managed to establish the prototype of a security policy utilizing industry and supply chains with the Japan-US alliance as the principal axis.

The two sides are continuing to deepen their collaboration. Japan and the US jointly called for planning a supply chain blueprint in the global action initiative during a meeting of the Quadrilateral Security Dialogue in January. In late May, US President Joe Biden visited Japan and officially launched the Indo-Pacific Economic Framework for Prosperity, proposing the goal of shaping resilient economies. Japan has responded positively and joined the information-sharing mechanism for inventory and production on strategic materials such as semiconductors.

Tokyo has joined the collusion to form small circles in the name of multilateralism. In March 2021, Japan, the US, Australia and India issued the Common Statement of Principles on Critical Technology Supply Chains. In May, Japan unveiled eight approved projects to build up resilience for the "Indo-Pacific" supply chains. Japanese Prime Minister Fumio Kishida also visited Southeast Asia in May and touted the concept of regional supply chain resilience. In July, Japan participated in the 2022 Ministerial Forum on Supply Chains led by the US as part of the efforts to develop the "Indo-Pacific" supply and industry chains.

The so-called reshaping of industry and supply chains is essentially advocating ideologies and establishing blocs in the economic field. Japan's beggar-thy-neighbor approach in its security-economic logic will not lead to the security of industry and supply chains that it has fantasized, nor will it offer a solution to regional prosperity. Instead, it will destroy regional value bonds and reduce economic efficiency. At the micro level, businesses must not only meet the policy requirements, but also avoid the decoupling policy, which can lead to mounting costs, rising prices and heightened burden on society. At the macro level, the weaponizing of economic issues has worsened the geopolitical situation in Asia, damaged the region's global competitiveness, disrupted the existing cooperation frameworks such as the Regional Comprehensive Economic Partnership, and exacerbated the vulnerability of industry and supply chains.

Openness and cooperation are the trend of history, and mutual benefit and win-win results are the aspiration of the people. China has proposed the fostering of a new pattern of development that is focused on the domestic economy and features positive interplay between domestic and international economic flows. President Xi Jinping underscored that maintaining the resilience and stability of the global industry and supply chains is a vital guarantee for promoting the development of the world economy and serves the common interests of people globally

Behind the insecurity of Japan's industry and supply chains is the relocation of industries overseas, its shrinking market, and a lack of innovation. The same is true for the US. It is the general trend of the times to keep up production capacity, bolster scientific and technological support, and financial assistance, develop a modern system, ensure the supply of resources and energy and build up the high-tech manufacturing sector.

Since its reform and opening-up, China has actively integrated itself into the global industry and supply chains, enabling the historic development of itself as well as the world and making itself a hub connecting the supply and demand of the Asia-Pacific and even the global industry and supply chains. China is an active contributor to globalization and has taken pragmatic actions to coordinate international efforts to strengthen international cooperation on industry and supply chains.

East Asia, where China and Japan are located, is one of the three major economic circles in the world. The two countries, with their industry and supply chains highly intertwined, play key roles in the regional industry and supply chain system. The economic and trade exchanges between both sides have not been interrupted even during the most difficult periods. After decades of growth, the two countries have developed close economic relations, with the bilateral yearly trade volume exceeding $310 billion. China has been Japan's largest trading partner for 14 consecutive years, and the nation is an important buyer of Japan's semiconductor-related products and chemical raw materials. The supply chain in China has become an important part of the global supply chain of Japanese companies. It is difficult for Japan to decouple its supply chains from China, which is at the core of the East Asian economic circle.

Instead, it should strengthen its cooperation with China in research and development, marketing and other sectors.

Trade and investment between China and Japan is still being deepened even under the impact of the COVID-19 pandemic. In 2021, bilateral trade grew by a record high level of 17.1 percent. China's actual use of investments from Japan last year increased by 16 percent year-on-year to $3.91 billion. Japanese industrial giants Fanuc and Yaskawa have both decided to increase their investment in China to meet the surging market demand. Panasonic, which adopts the strategy of localized production and operation in China, saw its home appliance business in China grow by as much as 119 percent in the 2021 fiscal year. Some Japanese companies transferred their businesses out of China because of cost and market considerations instead of security factors, and they have not broken away from a supply chain system centering on China.

China is instrumental to Japan's economic growth. Both countries play an important role in the regional supply chains. There is broad room for bilateral cooperation in new energy, public health, healthcare, and infrastructure in third party markets. It is in the common interests of both sides and the region to pursue more in-depth integration. Actions that interfere with market behaviors justified by so-called values and security concepts, or those that politicize and complicate economic issues may eventually backfire and endanger regional stability and Japan's own interests in the long run.

The author is an associate researcher with the China Institutes of Contemporary International Relations. The author contributed this article to China Watch, a think tank powered by China Daily.

Contact the editor at editor@chinawatch.cn.